THAT'S the correct question. It is to prevent that sort of government effect that the government "taxes itself" presently under the income tax or under any of the flat tax plans proposed and there is certainly no rational reason why government output should be excluded from the FairTax base.
If you did some looking into the matter, you'd also find that most economists also have the view that including government output in the tax base is proper.
No rational reason???? It's complete fraud. Government can't raise money by taxing itself. If you wish to add sales tax to government enterprise, that makes sense. But to add 30% tax to the cost of obtaining $1 billion stealth bomber is ridiculous. It's just an accounting trick to fraudulantly make your fairtax rate appear it can be lower than it actually needs to be. Kotlikoff should be ashamed of himself for promoting such fraud.