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The border adjustment tax would tax imports on the front-end at full sales value, giving exports a free pass
A massive new tax on imports being considered by Congress as part of an overall reform package designed to lower individual and corporate taxes could hurt Americans more than it helps, William Dudley, president of the Federal Reserve Bank of New York said Tuesday.Dudley said he supported broad corporate tax reform, but expressed concern that a border adjustment tax was too risky for the economy.
The border adjustment tax, authored by House Ways and Means Committee Chairman Kevin Brady, R-Texas, and part of a House blueprint for jumpstarting the economy, would tax imports on the front-end at their full sales value rather than on the back end as income, while giving exports a free pass.
“I think that it will probably lead to a lot of changes in the value of the dollar, the prices of imported goods in the U.S.,” Dudley said, according to an NRF statement. “I’m not sure that that would all happen very smoothly and I also think there could be lots of unintended consequences.”
Some economists said the import tax, designed to make domestic manufacturers more competitive and help pay for the reductions in income tax, would strengthen the dollar and make imports cheaper, thereby negating its impact.
“I’m not of the view that import prices would go up 10 percent and the dollar would appreciate by exactly 10 percent so that the value that retailers pay for the imported goods would be exactly the same in dollar terms,” Dudley said. “I’d like to see corporate tax reform and I’d like to see something that does reduce some of the distortions that occur, but I want to see something I think that is probably a little less dramatic.”
The border adjustment tax (BAT) is the top policy concern for many industries that depend on imports, but there is widespread confusion about what it actually would do.
An in-depth analysis, “BAT rhymes with VAT,” of this tax proposal is available in the new “Adam Smith Project” platform on globalization trends presented by American Shipper.