The Fair Tax: Following the bouncing ball towards an underground economy

Why do simple concepts escape Mike Huckabee?

The Republican presidential candidate often says that one of the selling points of his plan to replace the federal income tax with a 23 percent sales tax is that it would force those who deal in cash to pay taxes.

“You end the underground economy,” Huckabee said at a recent luncheon for the Greater Concord Chamber of Commerce. “Illegals, prostitutes, pimps, gamblers, drug dealers–everybody pays taxes.”

The only problem with this is, as the Wall Street Journal points out , that this would allow people to buy illegal items pretax. Meaning that not only would the fair tax NOT eliminate the underground economy, it would actually INCREASE the underground economy. Except now instead of the underground economy being just drugs,sex, and other illegal products, the underground economy would begin to include average everyday products.

For those of you who aren’t into economics think of it this way. Right now when you get your paycheck taxes have already been taken out. You’ve paid your price to society. Under the fair tax no money is taken out of your paycheck. Instead you pay your taxes when you purchase items at the store. But being the smart S.O.B that you are, you realize that if you bought things somewhere other than the story then you would NEVER PAY TAXES. A quick realization that when demand increases so does supply and BAM. Instant blackmarket. The sad thing is that it wouldn’t even be hard. Ever heard of Costco or Sam’s Club?

UPDATE: From the Comments Section Matt points out this part of a recent New York Times interview with Governor Huckabee :

Huckabee does not have an impressive grasp of its details. When I suggested, for example, that consumers might evade the tax simply by acquiring goods and services for cash on the black market, he seemed genuinely surprised.

Read the entire Interview Here.

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6 thoughts on “The Fair Tax: Following the bouncing ball towards an underground economy

  1. The underground economy is already thriving in America. From after hours booze, to weapons, to drugs, and so on…

    Pre Tax purchasing, is, and has been an honored, and long standing tradition in the United States.

    The “Fair Tax” would only effect law abiding people.

    Have any solutions? I would love to hear them myself.

  2. My solution…don;t make the underground economy bigger.Oh yeah, cute response, but how about actually trying some refutation here.

  3. Black market? Come on. Read up on the fair tax. It is 1000 times better than the crap the gov is running now. I am not concerned about the a shady deal going down for a carton of cigs. Gimme a break. The article in the WSJ from Barlett totally ignores the drop in core price for goods and services as a result of zero imbedded tax costs.

  4. IMO black markets pop up for illegal activities. Sex, drugs, once upon a time booze = Black market. The rest is just stealing real goods. The same thugs that steal and sell LCD TVs today will be around in the future. Fair tax or not. The price at Best Buy shouldn’t go up as a result of the Fair Tax becuase the imbedded tax is taken out up front. Thus erasing demand for stolen goods.

  5. Black market? Come on. Read up on the fair tax. It is 1000 times better than the crap the gov is running now.

    John.Thanks for reading my blog. I know you’re new here so let me in on a little secret. On this blog we believe in this thing called a warrant. Try using one next time.

    I am not concerned about the a shady deal going down for a carton of cigs. Gimme a break. .

    Tell that to the businesses who start losing massive amounts of revenue

    IMO black markets pop up for illegal activities. Sex, drugs, once upon a time booze = Black market. The rest is just stealing real goods. The same thugs that steal and sell LCD TVs today will be around in the future. Fair tax or not. The price at Best Buy shouldn’t go up as a result of the Fair Tax becuase the imbedded tax is taken out up front. Thus erasing demand for stolen goods.

    Who said anything about stealing? I think you’re confused. But in your confusion you do make a good point. If the fair tax is implemented certain businesses very well could be forced to raise prices because of the loss of revenue from the black market. Go fair tax!

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