Posted by
Andrews on Friday, December 07, 2007 9:51:51 AM
After I wrote the post below, I just thought of two great schemes to defraud the FairTax:
1. The scheme I mentioned below: Open some sort of home business to make all your purchases "wholesale". Since no one is monitoring taxes paid by an individual, no one will notice that you never seem to pay any consumption taxes. And you still get the prebate as a bonus.
2. Even better. Open a consumer good rental store. You buy things wholesale, pay no taxes. "Rent" them out on paper. No need to ever actually rent them to anyone, so long as they have a paper trail saying they are "used". Now you can sell essentially new goods at a price substantially lower than your competition.
Just thought I should point out that a relatively law abiding guy sitting at home could come up with at least two effective ways to defraud the FairTax in a matter of minutes. Makes a bit of a sham out of the proponents' claims that the FairTax will "capture underground economies" and is harder to defraud.
The only way I see the government avoiding these schemes, and other, much more creative ones, is a very intrusive, and huge, investigatory agency. Yet the proponents claim the FairTax will "eliminate the IRS". Well, yes, but it will be replaced with a larger, even more intrusive, agency (or there will be massive fraud).
ADDENDUM (to the Addendum):
Actually, I just thought of a better variant on #2. Collude with a legitimate rental business. You could essentially "launder" new goods through them. They agree to say that purchases were made for rental and you resell their old goods. In reality, you are giving them money to purchase new goods which you then resell at used prices. This way, without an audit of the rental company's books, there is no way to find the fraud. The company is legit, it does rent out goods, so everything looks legitimate.
See how easy it is to commit fraud under the FairTax? Yet the proponents claim it will eliminate fraud and tax the underground economy? I highly doubt that.