Price floors, such as those on labor (minimum wage), cause goods/services to cost more than they are worth (if the floor is higher than the product’s true value). For this reason, people cannot afford to legally engage in these transactions, resulting in slew of malinvestment or underground dealings in the black market. While this kind of black market causes goods and labor to be sold lower than their legal price, the common black market results from price ceilings and allows goods and labor to be sold higher than their legal price. For example, milk might be limited to $3 a gallon, but if because of inflation or high demand, its true value is $4 a gallon, then sellers and buyers are going to try and find its true value on the black market. So in this example, milk is legally underpriced by 25%. The amount affected by price ceilings in the legal market varies per individual product, but let’s say the percentage stays about 25% underpriced.
So now, if the opposite occurs, and a sales tax makes every product 7% more expensive, then there should be a black market for these goods. This includes the taxes on labor. But the legal risk involved is not worth the 7% savings, especially since all of the competition must also overprice their goods/services 7%. Minimum wage on the other hand, affects labor differently because some labor is below the wage. If a job is worth $4 an hour, but minimum wage is $8 an hour, then the emplyer must either take a hit by substituting labor with machinery or higher skilled labor and risk going under, or engage in illegal labor. Minimum wage therefore affects some employers more than other employers, and even though the “tax” goes to the employee rather than the government, the employer doesn’t care. If he hires the overpriced laborer, he must pass this tax onto his customers who might find that they no longer are willing to pay for the good/service or are willing to substitute the good/service with another good/service that isn’t affected by minimum wage (because let’s say it consists of automated production or higher skilled labor).
So, the sales tax is like the minimum wage and other floors, but it is a percentage, not an amount–so it does not affect some goods/services more than others. It is similar to how price ceilings usually follow a percentage rather than a set amount for all goods; but ceilings are usually only for selected goods, even though those selected goods are hard to substitute. Still though, it seems there should be more of a black market for products, especially for the more expensive products, where that 7% means a lot more. Let’s say the sales tax becomes 50%, then wouldn’t there be a black market for all goods? Wouldn’t it lead to self-sufficiency like in the stone age?
Also, how do minimum wage law, welfare, and the progressive income tax relate? They all discourage labor/production. Minimum wage puts a tax on low skilled workers, progressive income tax puts a tax on wealth production, and welfare puts a tax on low paying jobs because it is more profitable to collect welfare.
