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You might have missed this earlier in the thread where we discussed the inflationary aspects of the FairTax. Kotlikoff does indeed bring it up in the very paper referenced by this thread:

"The first is the major capital gain that the federal government stands to accrue if, as seems likely, the Federal Reserve fully accommodates the introduction of the FairTax and permits consumer prices to rise by roughly 30%. This would reduce the real value of nominal U.S. government debt in the hands of the public (many of whom are foreigners) by about $1 trillion."

While Kotlikoff presents inflation as a "capital gain" to government, note that there is an equal "capital loss" by holders of government debt assets (whether foreign OR domestic)... got any T-Notes??, ... got any money funds? ... got any low risk or tax-free Mutual Funds?

The gain/loss (inflation) phenomenon is not simply limited to government debt. It's also affects the real value of ALL capital assets.

What Rob (and several other of us) have been saying about the devaluation of capital assets and the resulting impact on holders of those assets is spot on. And, apparently, the "poster economist" for the FairTax, Kotlikoff, also believes it will happen, but, because of his underlying agenda, he fails to complete the impact of the inflation picture.

Smart. I notice you provided no link, because Mr K. would have had to work through the money supply aspect of the taxation, which would be nil. Since you didn't, I will give you a short lesson:

If I make 100,000 dollars and am taxed at 25% on my income I am left with 75,000 dollars. If, under a NRST, I make 100,000 dollars and WILL be taxed 25% on all of my purchases I know that I can only buy about 75,000 dollars of merchandise.

In either scenario the supply of money in the economic system, and the amount of money removed from the system by government is about the same. So the amount of goods and services I can purchased has not changed.

Therefore, the fruits of my labors purchase the same amount of goods and services under either scenario.

If, under Rob's scenario, the amount of goods and services I can purchase with my income drops suddenly by 30%, I am hosed. If this becomes a nationwide scenario the end of the world is near because of economic collapse. My labors suddenly provide me with 30% less of what I was able to buy before. That is ok when you're talking about movie tickets, but what about the monthly rent? The gas bill? The car payment?

That is why the Fed is so diligent about inflation and not employment. We can always get a job, even if it's setting up a lemonade stand.

But under a fiat currency system, the value of the currency is vital.

I see that you are once again cherry picking only what YOU want to quote and ignoring much more relevant data from that paper.

pg 12 -"Therefore a rise in the price level would be possible only if accommodated by an increase in the money supply. Put another way, without monetary accommodation, prices faced by consumers under the FairTax would not rise. Any changes to the level of monetary accommodation, i.e. increase in the money supply, would cause prices to increase in the same proportion."

pg 23 -"We assume that the monetary authorities do not accommodate the adoption of the FairTax, which is to say that they restrain the growth of the money supply sufficiently to prevent market prices from rising. As mentioned, this is merely a simplifying assumption. We could just as well have allowed for monetary accommodation, so that there would be no fall in producer prices under the FairTax. Doing so, however, would merely have made the algebra more complicated without changing the results."