Many people still feel the FairTax would open up an “Underground Economy” of tax cheats. When it comes to purchasing goods, nothing could be further from the truth. As far as service providers, we believe the FairTax will reduce the possibility they will cheat, but as long as business owners are willing to risk their business and livelihood, then there is nothing from stopping them.
NOTE: We are NOT claiming the FairTax will eliminate or eradicate all cheaters. Short of an apocalyptic event, nothing in the world will ever do that. Our goal here is to show you that the FairTax will significantly reduce the number of potential cheaters.
$14 Trillion Dollars
A primary (and completely legal) method of businesses (and wealthy individuals) cheating the current tax system is to hide their money in offshore accounts – to the tune of over $14 TRILLION dollars. We will get into the repatriation of this money in a later post, but under the FairTax savings and investment accounts are not taxed; which would allow corporations to repatriate their money and begin reinvesting in the US economy again; effectively removing the need to cheat the system by hiding money offshore.
6.6 Million Cheaters
Under the current system it requires ONE person to discretely change a number or falsely claim additional monies (or dependents) on their tax return without anyone else knowing. Because income tax reporting is so convoluted, cheating on income taxes can also be “defended” by saying it was a mistake. And according to this CNNMoney Article, 4% of Americans did just that in 2010. 4% of an estimated 165M taxpayers is 6.6 MILLION cheaters. That’s huge!!
Under the FairTax, TWO or more persons are generally required to cheat the system (again, when purchasing goods) – most commonly, a seller and a buyer. Since the FairTax taxes consumption rather than income, cheating on transactions between seller and buyer (collusion) is clearly much less likely than in our current situation. Cheating under the FairTax cannot be “defended” as easily as it can be under the current system because “when a retailer fails to pay over trust funds, he does so at great peril and with the knowledge that he is violating the law (i.e., committing evasion). Few excuses apply.“ If we took the same 4% from above and applied that to the 22M businesses we get 880,000 potential cheaters. But because business owners generally have more to risk, they are less likely to cheat. So even if as much as one percent of businesses actually cheated on their taxes, that would still only put the cheats at about 220,000 which is a 96.6% decrease from the existing system.
For anyone wanting to cheat the FairTax system, they have 3 possible options: They can purchase the goods tax-free and try to sell them at a reduced cost; they can steal the goods and try to sell them at a reduced cost; or they can try to smuggle the goods in across the border and sell them at a reduced cost. So why are they not likely to happen?
- Purchase and sell goods Tax-Free. First, this would require a business license. In order to obtain a business license, businesses must be registered with the State and Federal Governments so that your business can be issued a business ID card. Second, this would require that you file and remit taxes to the State on a monthly basis, eliminating any incentive to register a business just to become a tax-free entity. The risk far outweighs the benefit, as it would be a felony to violate this law.
- Steal and sell goods Tax-Free.Theft, as we all know, is highly illegal. Business owners often spend more money protecting their goods than they do purchasing those same goods. But we’re not talking about someone breaking into an appliance store, or pocketing an iPod from your favorite electronics store to avoid the FairTax. No, to make any real money, a large scale theft of goods would be required. Something along the lines of hijacking a semi-truck, or a fleet of delivery vehicles. Sorry, this may happen in the movies, but it just isn’t feasible in real life.
- Illegally Import and sell goods Tax-Free. Imports under the FairTax are taxed. So to avoid the FairTax, goods would have to be smuggled into the USA much like drugs, weapons, and humans are today. The risk to reward here is so great that the goods would be slightly competitive to the goods sold here in the US.
Top 100 = 70%
Regardless of how the FairTax can be avoided, in the same way the state agencies police State Sales Tax compliance today, they will also police FairTax compliance. Aside from criminal penalties, FairTax Resale abuse could cost a retailer their livelihood. In 2010, the top 25 retailers in the US sold ~70% of all new products. If you are concerned that any one of them (or any of the other Top 100 Retailers) would risk losing their business license in the US (their largest market), then you really need to put the kool-aid down and step away from the punch bowl. There is no possible way that Wal-Mart, or even HSN, will risk losing what pays their bills just to put a couple bucks back in your pocket.
Obviously no system is perfect enough to eliminate ALL possibility of cheating. But clearly the FairTax reduces the likely amount of cheating to pennies as compared to the amount of gaming our current system is taking.
Let’s do this! Support the FairTax now!
Your representative’s name and contact information is here:
Your senators’ names and contact information are here:
We urge you to contact them by phone and/or e-mail and demand that they learn about and endorse or support HR25 (House of Representatives bill) and S13 (Senate bill). Copy and paste this information into an e-mail to them and let them know you will only vote for candidates who support HR25/S13, THE FairTax.
 The FairTax reduces complexity, compliance costs, and noncompliance:http://www.fairtax.org/site/DocServer/TheFairTaxReducesComplexityComplianceCostsAndNoncomplian.pdf?docID=601