Then why do you have "I like Mike" in your sig, which is taken right from his web site?? If you just want to talk about Fair Tax, why do you only support Mr. Huckabee?? You should put Mike Gravel in there too.

I've worked for peopel who have avoided sales tax before. It's actually quite easy from what I can tell.

This is espiecally easy if you get your products overseas as you can always just pay for a certain number of products on the record at an inflated cost and have them ship more to you. These additional items just never being recorded in the sales logs with the extra profits pocketed.

Having one point of sales just makes it easier because they can do it on a smaller level and reap the same amount of profits if not more.

Other commonly done practices include marking some units as either stolen, damaged during shipping or replaced with defects. Considering the large number of products that can be destroyed in some places this can be quite effective.

For example, some distributors mark products as damaged, that were, the cans dented, boxes slightly ripped. (this hapens A LOT) and then turn around and sell these products to the workers at the plant/store to stores for cheaper goods or just to other people they know. (Or just pocketed themselves.)

There would be a much greater reason to "accidentally" rip the packaging on these items, or even just mark them as such like above.

The way this stuff is done, a looking over of the books or a manifesto isn't going to work, and even hands on inspections are pretty impossible to nail someone on. 

Good questions again Final. But before I can properly answer I will need to research the VAT. As I currently understand it, raw materials are taxed very little or not at all, and finished goods are taxed at the full rate. Now what is stopping consumers from buying unfinished goods, with less tax, and finishing them on their own? This is probably naive to think that is how VAT is being avoided, but my current lack of understanding does not stop me from understanding the FairTax.

There will be evasion, there will always be evasion. That is no excuse for not offering an explanation as to why I think evasion will be down under the FairTax. Firstly, in order to buy goods above the retail level, you need a permit allowing you to buy them FairTax free. If you do not have the permit you cannot purchase goods FairTax free. Now will some business employees try to buy things from a vendor and not pay taxes on it, but if they get caught the business gets fined and has to repay the FairTax owed with interest. A small business would not want to take that chance, and if they did anyways they have a much greater chance of being caught.

Now so far I have just reiterated your concern from 1. Now the evasion rates you [edit: alluded (thanks Final)] to. You assert that there is 10% evasion for a 6% sales tax. My questions regarding that are, which state is it in? Is the sales tax inclusive or exclusive? How high are the wages? Are there other types of taxes on the goods embedded? Are there any other type of price controls people would want to get around?

Here is an excerpt of a response to the evasion attack from Neal Boortz:

2. Tax avoidance would skyrocket. Boortz claims the FairTax would eliminate tax avoidance. Wrong! Here's a simple example. Let's say I'm Neil Boortz and I want to buy a $200,000 yacht. Under the FairTax plan, I'd need to pay at least $60,000 in taxes to buy that yacht if I purchase it in the US. But if I go to the Bahamas and buy it, I don't pay any tax. Let's see, do I be a good citizen and pay the $60,000, or do I vacation to the Bahamas, buy the yacht there and pocket the $60,000? Gee, tough decision, but I know what ol' Neil would do. Same thing with expensive jewelery, vacations (why ski in Colorado and pay taxes on lift tickets, hotel and restaurants when you can ski tax free in Canada), you name it.

Once again ... either an intentional lie or honest misrepresentation. Nowhere in The FairTax Book do we say that "the FairTax would eliminate tax avoidance." In fact, we say just the opposite. We note that some degree of avoidance is a certainty ... just as it is under out present system. What was it that Kepner said? Oh ... I think it was something like "When they lie about the rate, how can you trust them with anything else?" Well .. here's another Kepner lie. What does that say about the rest of his critique? Now ... about that $200,000 yacht. First problem. $200,000 doesn't buy much more than a mid-sized Boston Whaler fishing boat. Pricing aside, If I were to go to the Bahamas and buy that yacht, as soon as I bring it into this country I pay the tax. Ditto for trying to buy an airplane in Switzerland, a car in Germany, Diamonds in South Africa ... whatever. I guess Mr. Kepner hasn't heard of the U.S. Customs Service. Not surprised. Also .. since when is Canada tax free?

(Source: http://boortz.com/nuze/200508/08032005.html )

His whole response to the guy who reviewed his book is an interesting read, and classic Boortz. Here are more questions and responses from Boortz on the same issue.

4. More tax avoidance. Remember, businesses aren't subject to the FairTax for their "investments". So I set up an LLC, buy a vacation home, and rent it out a couple nights a year. Bingo! It's now an "investment". No tax. Hey, why don't I do the same thing with my primary residence? After all, there won't be any IRS looking over my shoulder, will there Neil? In fact, maybe everything I buy from now on (clothes, restaurant meals, cars) will be for my LLC. Hey, good thing there won't be any IRS around to make sure these aren't for personal use.

That's called tax avoidance, Hayden. It's illegal now .. it will be illegal then. That same tax avoidance scheme is available to you right now. Why don't you get out there and try it? Let us know how it works out. It seems that Hayden Kepner's critique gets weaker as we go along.

5. Even more tax avoidance. Is a drug dealer going to pay taxes on the drugs he sells? What about deli's or retaurants that operate a cash business. Are they suddenly going to report all of their sales and pay taxes on them? Uh, let me guess.

These delis (there's no apostrophe, Hayden) and restaurants (that's the proper spelling) can do that now. Do they? Yes ... some do. Most don't. Again, there will be enforcement of the rules and regulations of the FairTax. Running out of steam, aren't you Mr. Kepner?

There will obviously be attempts to fraud the FairTax, but they will are all available to people today. The reason they don't try them en masse is because there are oversight agencies, like the IRS and the State. Each state will still be watching over businesses in their jurisdiction, and there will be a smaller FairTax supervising agency. The "FairTax Agency" would not be obtrusive in normal citizen's lives, but would ensure that the collection of the FairTax was happening properly at the retail level.

I admit there are issues regarding compliance and collection from businesses, there are currently and there always will be. However, this does not mean that the FairTax is a broken idea. It will take enforcement, yes. It will take a bit of honesty, yes. It will also take more than one person to cheat it, it takes at least two people to evade the FairTax. That will keep evasion down in and of itself. The penalties for cheating the FairTax will not be pleasant and can be caught. If you make the penalties high enough, fewer people will want to risk cheating and taking that penalty.

Ahh yes, I nearly forgot your second point. This is a fair question you ask, but one that I have pointed out before. Prices already include the taxes of businesses and their employees. Now lets see if I can effectively setup a model here. Lets create a fictional business together.Final-Fan and Eomund, Inc. lets call it.

We are in the market of say, making bookmarks and other printed items. We sell these items directly to the public. Now we have 100 employees, besides ourselves. These employees are paid $10.00 an hour. They all work 40 hours a week. The total price of wages comes to 100(e) x $20.00(w) x 40(t) or $40,000 weekly (e= employees, w= wages, t= time worked). So if we pay $80,000 in wages how much do our employees take home? Each employee would take home about $619.10 weekly (7.65% Social Security and Medicare taxes + ~15% Federal Withholding Tax [sources: http://www.ssa.gov/OACT/ProgData/taxRates.html and http://www.yourmoneypage.com/withhold/fedwh2.cgi ]). The total take home wages of our employees would be $61,910, just as a reference. We are stingy and don't provide any other benefits at the moment.

Lets assume our supplies for creating the product cost us $10,000 weekly as well (we will leave out the embedded taxes from our supply, at least for now). We also had to buy the printing and cutting presses for our product, to do that we took out a loan of $150,000 at 8% over 20 years or 120 months. Now we have to pay the loan every month @ $1254.66. We also have to have a building to do business and rent costs us another $2500 monthly. Our costs have quickly added up. Monthly expenses are ($80,000+$10,000+$1254.66+$2500) = $93,754.66 without taxes. So we need to sell at least $93,754.66 just to cover expenses pre-tax. Now lets assume that we sell $100,000 on average. That means that we are making a profit of $6245.34! Wahoo! O wait, just a minute. The government just taxed that income @ 39%. (soruce: http://www.smbiz.com/sbrl001.html ) So we actually only made $3809.66... But wait there are more taxes to be paid. The payroll taxes need to filed and paid. That is an additional 7.65% of wages (matching payments) + State and Federal Unemployment Taxes of 6.2% (since we are a startup business we don't get any credit source: http://www.alllaw.com/articles/tax/article5.asp ). That means 7.65+6.2=13.85% of $80,000 is another $11080 from our coffers. So profit of $3809.66- payroll taxes of $11080 = Net loss of $7270.34. We are actually operating at a loss!!! So we have to raise prices to cover the costs of business. We will have to make another $10,000 to cover costs.

As you can see from this lengthy example that taxes are figured into prices. We can't pay our employees less, they have make enough money to survive, so the price of our product actually gets hit for the full amount of taxes @ 36.5% (adding up all taxes for employee income). Now that is a hefty amount and is assumig no deductions. Now also think about the income tax on our revenue as a business. This is not even including the money it would cost us to hire accountants and tax lawyers to ensure our own compliance with current tax laws. This is a huge burden for our little business to pay. And since we want to make a profit, we have to raise our prices to include our tax burden.

Therefore our prices include our taxes paid, aka embedded taxes. When we strip out the taxes our business pays, we have much less overhead. The FairTax would replace the current taxes already embedded in the price (in our business model, the FairTax is much less than the taxes we already pay). This is why I can say that prices would not be any higher than they currently are, not to mention market forces driving the prices down to the lowest point possible while still maintaining a profit.

PS. sorry for the length of this post, but I was trying to make complete models and answers to your questions.

NOTE: I edited all the links to make them work.

 I will answer above. You raised very good questions. But for now we rely on honesty in business already, and what would make the FairTax any different? I understand your concerns, but these things are, for the most part, enforceable and checkable.

i am a big supporter of the fair tax. business in america would go crazy. all the barriers to opening small business would become smaller as a big reason small business fail is bookkeeping and the burdens the complex IRS code place on small business owners.

Is the current system broken? 

1.  All tax replacements start with the current system brings in $x in taxes.  So it's replacement must.  Thus any tax replacement is just a redistribution of the tax, usually (as in the fairtax) lowering the burden on the rich and very rich placing that additional burden on the middle class, since the biggest tax break in the fairtax is for the poor. 

2.  The second thing is the current system is complex because life is complex.  There is rarely anything free in life and there is rarely any simple solution that is also the best solution.  That's great that the government gives a "standard deduction" with the fairtax.  But where are the exemptions for charities, handicap, medical exemptions, housing exemptions, schooling, etc.?  Are you saying that these were all bad laws, that these individuals don't deserve any tax break? 

3.  There may be a large portion of payroll taxes/compliance taxes, that corporations would save.  But they won't pass along the savings.  I'm sure there will be some advantages, but the economy has been tough recently with several large corporations claiming losses.  They have this chance to make a bleak situation much better and they are going to give money back?  It'll just be an easy way to pass along the price increase that they wanted to pass along.

My biggest problem with the fairtax is currently we have a lot of #'s but they are all projections.  No one knows for sure what the first year with this tax would be like.  How many industry individuals predicted the Wii would be sold out for a year, sell nearly 20M in it's first year and would likely cruise to an easy victory this generation?  Not one that I know of.  But they based their expectations off of the best information that they had of the market.  My concerns are:

1.  We save $x billion (no one has given me an exact #) on the cost of compliance.  These are almost fully the cost in individuals salaries.  Yes, I think that this may be a bad thing.  This is billions of dollars of skilled labor losing their jobs accross the country.  All signs are that we are very close, if not in a recession.  I understand that if the tax dissapears and they aren't giving us value, we have no other option, but it's not the best time in our countries history for a change like this. 

Also, what about other industries such as construction?  If they are charging this tax on new homes, any one that has the money will likely push up their start dates to a time period before the tax begins.  Any individual not this lucky, will likely have to push their date back (due to lack of downpayment, lack of ability to get approval) or downsize their house.  Fine again and all, but I would expect a boon for the construction industry before the tax, then a crippling period of time where very little building was occuring. 

I would also expect this effect accross the other industries but not as hard.  It'll be Christmas the week before the tax goes into effect as every buys goods that will last a long time.  Thus, I expect sales for the first six months of the sales tax to be well below any prediction that has been talked about.  I'm thinking all I would buy is uncanned foods, and gas until my stash ran out. 

2.  Fair tax gains exemptions eventually becoming as convoluted as the current tax law. 

3.  Tourism will certainly be harmed by that large of a tax on sales.

4.  Government becoming dependent on even higher taxes.  Sales taxes are highly cyclical.  We could have one great year of sales, followed by a very poor year in sales.  So it will never be as simple as we got 10% less than we needed last year, so we need 10% more sales tax next year.  Income is much more stable.  The other part of this is that our government is notorious for spending the money it is given.  They got an extra $1 billion in tax?  Likely they will create several new programs using that $1 billion extra in tax.  Thus creating a future yearly tax need of $1 billion to keep those programs going.  This is a large reason we have such a huge deficit now.  When we, as a country, are doing good, we get fat.  But, when we aren't doing good, we never trim the fat. 

5.  State taxes typically piggy back off of federal tax.  As such, I foresee increased costs of compliance surrounding state issues and all Americans in states with Income tax to have an increased state compliance cost. 

6.  Used sales will increase significantly detracting for the # of new sales that can be acheived. 

and remember folks the top 50% of income earners in the us pay 97% of the taxs, with the top 25% of income earners paying 86% and the top 1% pay 40% of the taxes!!!!! that is not 'fair' to them either. there is no perfect tax system, but the fair tax is easily the best one i have seen proposed oh by the way the percentage of taxes that the 'rich' have paid have GONE UP since Bush took over in 01

I know precisely what it is investors do, you've just got a rather glorified picture of some genius superhumans who can work magic with money.  In any case, you're getting away from the main point that I was originally making, which is that these guys should naturally pay a higher tax rate, since they control more money.

You ask if I was suggesting that these people be arrested and their assets confiscated, and the answer is, if the situation warrants.  If these guys decide to have some sort of Randian capital flight because they don't like paying their share of the taxes, then absolutely.  We can't let a bunch of men act like children and take their toys elsewhere just because they want to pay a smaller percentage than everyone else does.  Especially when you consider how much smaller a percentage of their money they need to actually get by.

This is a bad example.  Assuming the competitors/consumers set price, a different tax is not going to save a failing business.  As there competitors are most likely making money at current prices, will lower their prices due to the savings of all the various payroll taxes and this business will continue to be in a loss condition with the different tax system. 

Also, am I missing something shouldn't it be $6,245.34-11,080 is a net loss carryforward of $4835.  I.E., we can use this loss to offset future earnings and pay less taxes on those.   I don't know why they calculated the tax and it shouldn't be 39%, since 39% was the largest incremental corporate tax rate.