It seems more accurate to me to say that there IS an effective pay raise (i.e., no withholding) under the FairTax, but that the price of consumer goods will not drop as much as has been projected.
BTW, I still want it. Anything that ends income tax gets my support.
I'm just reporting what Jorgenson's idea of the plan is, and his assumption was that gross income would drop, to keep take-home pay constant.
Your inflationary model (higher wages and higher prices) may work for you, because your paycheck would be larger, but what about Ma and Pa Kettle who have saved all their life to retire? How are they going to handle a 15-20% devaluation of their savings?
And, if American companies only see an 8-10% reduction in cost levels, then the huge domestic advantage vs. foreign suppliers disappears. You see, the removal of all these embedded taxes (payroll and income) from goods and services is what was going to make us more cometitive with foreign manufacturers that won't be able to remove all these costs.
The only reasonable way that FairTax could be implemented is that people's take-home income would stay where it is now (which is a cut in gross pay) and prices for domestic goods would also stay about the same.
Foreign goods would of course cost about 30% more than now, so you will lose a large amount of your ability to buy foreign goods. But hey, that's jsut those pesky foreign companies-- we want to see them put at a competitive disadvantage. There low prices don't help Americans-- or do they?