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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.

Right.

It's often said here that "companies don't pay taxes, customers do." Well, the same applies to governments: governments don't pay taxes, the governed do.

Looking at the problem from that perspective, all tax monies landing in the hands of the Federal government come from private sector individuals. Perhaps the best way to determine the full impact of the FairTax is calculate the rate that would be required if ONLY private sector consumption was taxed: State & Local governments paying FairTax raise the needed money from taxing the private sector and if S&L governments conform to the FairTax model, they too will derive their tax revenues from taxing private sector consumption. In the end ALL Federal FairTax revenues, would come from a tax levied on private sector consumption.

Working with 2003 data, the AFT determined that the FairTax tax inclusive, revenue neutral rate was 19.2% (taxing both private and public sector consumption.) If you shift the Federal FairTax burden to ONLY private sector consumption (as is done indirectly through S&L governments) the FairTax BURDEN on private sector taxpayers is as though the FairTax inclusive rate was 25%!!! (using the AFT's numbers and methodology)

Given the recent analysis by Kotlikoff which determined that the tax inclusive, revenue neutral rate for 2007 is 23.82% when taxing both private and public sector consumption, the BURDEN on the private sector after S&L governments pass on their FairTax burden to their private sector constituents is 31.5% !!! (this time using Kotlikoff's numbers and methodology.)

And remember, that is EXCLUSIVE of S&L taxes that fund current S&L budgets.

FairTax supporters always focus on the wrong aspect of the concept of the Federal Government taxing itself: they focus on the market-price-competetiveness part of the concept. They are indeed correct that failing to tax itself would create a market price disparity biasing consumption toward public sector goods and services over private sector goods and services. That aspect, however, has never been the problem.

The central problem with the FairTax on Fed Govt consumption is NOT that it taxes itself ... that is necessary to avoid the price disparity problem ... it is the fact that taxing itself generates NO NET TAX REVENUE on a portion of the tax base that is supposed to generate positive net tax revenue!

I'm sure we'll keep hearing about how "necessary" it is for the Fed Govt to tax itself; but the silence regarding the missing net tax revenue is deafening.

"It is [sic] 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."

Not at all - especially since he said nothing of the sort. The remark you take exception with is merely illustrating one possibility our of several and others are also included in the paper.

In any event, the paper also points out that when dynamic analysis (rather that the static analysis used in the paper) is used, the situation will no doubt dramatically better for the FairTax as well as for most taxpayers (which do just fine under even static analysis) and for the economy as a whole. Static analysis always favors the status quo (the income tax) and it is always misleading because of that.

The paper clearly shows that the 23% rate is sufficient.