Under the FairTax, since employees "keep 100% of their paychecks," the Feds will need 100% of the gross wage money to pay the employee. In the case of the example above where the government needed only $90 to pay its employee's $100 wage, it now needs the full $100. It's cash requirements have INCREASED by 11%.
As before, the government employee's wage is comparable to a private sector wage. But unlike before, the government must actually realize an additional $10 in tax revenue from sources outside the government to pay the wage.
Now the twist.
Since the government has levied FairTax on certain taxable employee wages, and government employees are considered taxable employees, the government must levy FairTax on its employee's wages. In the Private sector this would amount to a 29.87% tax on top of the employee's full paycheck. To ensure parity with the private sector, the government must do the same. The employee goes home with 11% more cash than under the income tax, which the government must get from other tax flows, and the government levies a 29.87% tax on those wages, which as in the case of the Income Tax becomes nothing more than a "virtual tax flow:" no money is needed to pay the virtual tax, no money is received by "collecting" the virtual tax. In a sense, it doesn't matter what the rate is, the amount needed to pay it and the amount collected are the same: $0.
BUT there is a real problem (as opposed to a virtual one:) Wages of government employees are included in the FairTax Tax base as consumption. As such, the FairTax on those wages is part of the replaced tax revenues from the Income Tax system. Unfortunately, since the FairTax on government wages generates no incremental tax revenue to the government, the effect of FairTaxing government wages is to exclude them from the tax base that generates actual tax revenues to the government: the tax base is effectively smaller by the amount of government wages paid, and therefore, the amount of total revenue raise is less than the FairTax claims by the amount that would have come from taxing these government wages if they had been private sector employees. And the amount of money required to pay those wages has INCREASED.
Not only is the FairTax "revenue short" by design, it also inflates the cash needs of government to pay workers.
As an aside, note that the use of the term "gross" as in gross wages or gross payments is different in the FairTax context and the Income Tax context. Under the Income Tax, the term "gross wages" is defined to mean wages BEFORE tax. Under the FairTax, the term "gross payments" is defined to mean payments AFTER tax. The key difference is that under the income tax, taxes were DEDUCTED from wages paid. Under the FairTax, tax is ADDED to prices paid.
This distinction is important in calculating the FairTax due on wages: the "gross payments" called wages under the FairTax must also include the tax. Since there is NO FairTax in actual wages paid to an employee (government or otherwise) the wages are "grossed up" by the amount of the FairTax (29.87% of the wages or 23% of the wages + FairTax) and the FairTax is "withheld" by the taxable employer and remitted to the government as tax revenue. Private sector taxable employers send money, government taxable employers enter a zero net cash set of transactions in the ledger: $X FairTax paid; $X FairTax received.
The net of it all: the government winds up with less cash and higher expenses than under the Income Tax system.
It would seem that the effect on state and local governments is amplified since the flow is real and not virtual dollars.
"In the Private sector this would amount to a 29.87% tax on top of the employee's full paycheck. To ensure parity with the private sector, the government must do the same. "Not so!! the government need only pay the 23% excise rate on the employees' gross wages - and the definition of "gross wages" is the same as at present.
The FairTax is certainly not "revenue short" any more than the present tax system nor does it inflate the cash needs of the government to pay workers
"Since there is NO FairTax in actual wages paid to an employee (government or otherwise) the wages are "grossed up" by the amount of the FairTax (29.87% of the wages or 23% of the wages + FairTax) and the FairTax is "withheld" by the taxable employer and remitted to the government as tax revenue. "
Your evaluation misses the point (among others) that there is NO "grossing up" (as you put it) of the 23% excise paid on gross wages of government noneducational employees. It is merely 23% of the gross wage amount. If the government employee has a gross salary of $100,000 defined as at present, the revenue generated will be $23,000 in tax (period). In fact this amount would be reduced since the $7,650 ER FICA portion would no longer be involved so that the net would be $15,350 less, in fact, some allowance for reducing the amount further by the ER FICA portion no longer paid on the government educational employees. If those employees wages represented, say, 20% of the government consumption expenditures the additional reduction allowance would be substantial.
Your analysis seems to be going in the wrong direction, if anything.