While there is some offset of State and Local spending owing to the elimination of payroll taxes, that amount is insufficient to cover the FairTax owed on S&L consumption. Think of it this way: for every taxable wage dollar paid by a S&L government, it saves 7.65% from the elimination of the payroll tax (ER portion) BUT it owes 29.87% in FairTax: on its taxable wages alone will cost S&L governments over 20% more than today.
Even when considering any potential cost savings of government non-wage consumption from possible price changes from eliminating business taxes and ER payroll taxes, it is not enough. Using 2003 data, S&L governments wind up $190 Billion short of the needed funds to pay their FairTax bill and hold real spending constant.
Couple that with the fact that any S&L sales taxes are levied on price value of taxable transactions. Any erosion in the pre-tax price of consumption will commensurately erode the S&L tax revenues as well.
In short, the only way to keep S&L government whole is for them to increase S&L tax rates. And Kotlikoff agrees.
It is ridiculous position to take that the 23% rate is sufficient to fund the federal government because it steals tax revenues from the states and then making the states raise additional taxes to make up for it. Kotlikoff sticks that in the middle of the paper in the middle of a paragraph and says it in a non-straightforward manner. It is a major point and Kotlikoff demonstrates just how bias he is in his analysis presentation.
"... it owes 29.87% in FairTax: on its taxable wages alone will cost S&L governments over 20% more than today ..."
Once again off the mark and for the same reason. there is no 29.87% on S&L government wages, but - as with federal - only a 23% rate less the 7.65% of ER FICA less also an adjustment for the ER FICA not due for educational employees. An observation I'd have is that I'd think the proportion of educational S&L employees would be even higher than for Federal meaning that there would be a proportionally greater reduction of the 15.35% rate.
It actually sounds like the Kotlikoff/Suffolk Hill paper is more and more right on the money.
"Couple that with the fact that any S&L sales taxes are levied on price value of taxable transactions. Any erosion in the pre-tax price of consumption will commensurately erode the S&L tax revenues as well..In short, the only way to keep S&L government whole is for them to increase S&L tax rates. And Kotlikoff agrees"
By a statement like that in your first sentence above you make the implicit assumption that static analysis is correct. In fact the government's use of static analysis for budgetary work ALWAYS shows it to be wildly off the mark precisely because it WAS static analysis. If prices drop (which they will prior to the imposition of the FairTax) there is certain to be an increase in tax revenues brought about by the thinks mentioned in the paper which any decent dynamic analysis would take into consideration.
For example a broader tax base adding millions as taxpayers who pay little or nothing presently. In addition, increased revenue due to increased economic activity. And as mentioned in the paper there are other things that would actually help benefit the tax revenue picture ... all the time while not increasing the FairTax rate.
As for your second observation, the Kotlikoff/Suffolk U paper does not at all "agree" as you state. That's merely your mistaken interpretation of what was said. The paper specifically states otherwise, but perhaps you missed that. It says that ONE way is to increase rates but it also gives other possibilities which you apparently choose to overlook.