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As for the black market, the IRS’s 2004 estimate of revenue lost due to tax evasion was over $260 Billion. Like any tax system, there will be tax cheats under the FairTax, but it will be much more difficult to do so. With the FairTax you will need two to tango, the buyer and the seller.
No, you don't need two to cheat on any fair tax system.
Google 'VAT fraud' and you'll the various methods employed, and it's big money too.
Otherwise, with a 'fair tax' only levied at retail level cheating becomes even easier.
An example:
Let's say it's a sales tax of 25% (many would argue to be revenue neutral it might be higher, particularly if you start exempting items and giving prebates)
For a $100 bucks I start a new corporation (you could do this without incorporating but this way it's easier to conceal your identity)
I open a store in a town somewhere. I sell products basically at cost. So, I sell a lot. I collect the 25% fair tax on these products. With my low costs (+25%) I sell about $500K worth of product.
While I collect the fair tax I do not remit it, so I keep $125K (25% of $500K) tax free.
Move, do it again etc.
One reason the VAT system taxes at every level, is to track products at every level. When the gov loses track of products fraud as I described above becomes very easy, likelwise for 'black market' operations.
As a CPA, I've seen occasions where local businesses go years without remitting the sales taxes they collect. I can think of one that got away with it completely.
I don't think that currently many 'steal' the sales tax, but as that rate becomes higher the temptation becomes greater.
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One thing that bothers me about the fair tax that no one mentions - the weathy are getting a huge exemption. They've already bought a ton of stuff, and it will never be taxed to them. People without much in the way of material possessions now will be hit with a tax on everything they buy.
That strikes me as unfair, and just another way to cement the existing the upper class and prevent others from reaching that level.
Fern