The FairTax, Join in!

[Final-Fan]

(First:  "eluded" should be "alluded".  I alluded to people who elude taxes.)

Eomund:

1. Your only reason given in the last post for why businesses would not cheat on a 30% (exclusive) sales tax is that they would have to have a permit and would be afraid of getting caught. Yet in Florida, 5% of all business-exempt purchases were found to be fraudulent and in fact for personal use. That statistic doesn't even include any other type of sales tax evasion, such as Kasz216 describes! And that is on a sales tax of 6% or less!

Arguing that people won't break the law because they will be afraid of being caught and punished is ... incredible, considering the current existence of crime despite the current existence of punishment. Moreover, the punishment you describe is hardly any deterrent at all -- "pay the fraud back with interest" sounds to me like a loan that you only have to pay off if you get caught! (Or, depending on the interest rate, a credit card. )

2. I don't intend to enumerate all the possible ways someone could evade taxes. Let's just agree that there are such ways. Ways that would be lots, lots more tempting; ways that people use more and more often as a given tax rises higher and higher. Which brings me to the fact that in the PDF you youself referred me to, a study in Minnesota in 2000 found that a 6.5%* (exclusive) sales tax had an evasion rate of 9.9%. (Oddly, they claim that an estimated 15 to 16.6% federal tax evasion rate is "almost double" this. 52-68% more =/= almost 100% more, in my book.)
http://www.fairtax.org/site/DocServer/TheFairTaxReducesComplexityComplianceCostsAndNoncomplian.pdf

*This is current general state sales tax according to Wikipedia. I don't know if it was the same in 2000 (but definitely not lower than 6%) and I don't know if the study included local sales taxes or the state alcohol tax. I haven't looked up the study myself.

3. I like your example. But I noticed that the income tax rate you quoted was wrong. This is from the source you quoted:
$ 0 ------- $ 50,000 ---- 15%
- 50,000 --- 75,000 ---- 25%
- 75,000 --- 100,000 -- 34%
- 100,000 -- 335,000 -- 39%
This means that only the income at or ABOVE $100,000 is taxed at 39%, or $0 of our income. Since you say our taxable income is $6245.35, we are taxed ($6245.35*0.15)=$936.80, leaving $5308.54. Even had we had $100,000 taxable income, only $1 of it would have been taxed at the 39% rate.

Secondly, and more importantly, your example actually proves my point. Our business may have tax troubles, but none of those troubles are the 15% withholding tax. That is going right to the government and neither we nor the employee ever see it, even though you rightly put that expense in with "employee wages". If that tax were to disappear, to be replaced by a sales tax, and we paid our employees the same wages, they would suddenly have bigger paychecks, and we would suddenly have bigger (after-tax) prices.

Unless we dropped their wages and our prices by the amount of the withholding tax ... if all the businesses in the US did this simultaneously when the FairTax took effect, then you would not see higher prices -- but you would not see higher paychecks, either. Is this the way you meant it when you said that it was an embedded tax? I see it as the very nature of interrelated monetary flows. Kinda like how rainwater used to be river water before it was ocean water before it was water vapor.

P.S. Are you sure all those other taxes are taken out AFTER the corporate income tax? My instinct is to doubt it, since it's a tax on what would otherwise be our final profit, but I really have no idea.