No simplified tax code proposal I've read would eliminate the problem of people doing cash transactions under the table, or "loaning" themselves a house and treating that as a business asset.
The Fair Tax would take care of most of that. Any transaction with a business would have sales tax. There are no write offs, so the business asset would not fly, neither would be buying Ferraris.
Every time I've looked at the Fair Tax proposal, I've been underwhelmed and thought the name was the same sort of anti-nomer as the Patriot Act. But maybe you can change my mind.
It's a tax on buying. Think about that for a moment. Fair Tax proponents claim that the current tax system causes disincentives for things like exports and U.S. manufacturing. Why would the Fair Tax proposal then not cause a disincentive on the demand side of the economy? ("How will the plan affect economic growth" in the FAQ clearly espouses a particular economic ideology that has yet to be supported by any of the facts of history.)
It also places the entire tax burden on the consumer. Annual pre-tax corporate profits are somewhere between $800 billion and $2 trillion, depending on which data you decide to believe. Why is all that money being left on the table in favor of drawing the entire national budget from consumers?
You should check out the link I posted above. Under the FairTax the highest and lowest brackets will see their share of taxes go down. Everyone who makes between $15,000 and $200,000 will see their share of taxes go up.
The FairTax also shifts more of the tax burden on to the middle-class. No thanks.
"With the prebate program in effect, those earning less than $15,000 per year would see their share of the federal tax burden drop from -0.7 percent to -6.3 percent. Of course, if the poorest Americans are paying less under the FairTax plan, then someone else pays more. As it turns out, according to the Treasury Department, “someone else” is everybody earning between $15,000 and $200,000 per year. The chart below compares the share of the federal tax burden for different income groups under the current system and under the FairTax. Those in the highest and the lowest brackets will see their share decrease, while everyone else will see their share of taxes increase."
The Fair Tax would "take care of" neither of the examples tptacek gave... Like all other sales tax proposals, it relies on voluntary reporting of sales. Want to cheat the IRS? Just don't tell them about it.
> Want to cheat the IRS? Just don't tell them about it.
This might help your customers, but it doesn't help you (unless you charge the sales tax and don't forward it). So the cheating incentives are much lower.
