But the fair tax assertion that prices immediately come down 20% can no longer be made.
Only if you subscribe to a static model of the economy.
Oh, and by the way, you have it completely backwards -- if Rob's analysis is correct, Jorgenson still maintains that the prices will drop by 20% or so, but that employees would not receive their currently withheld income and payroll taxes.
Of course, that would violate a large body of contract law, but that's probably because Jorgenson just makes an assumption to make modelling the changes easier, not that this will necessarily be the case in practice.