The Corner

Economy & Business

Going Through a Phase

Some supporters of the border-adjusted tax have argued that it would reduce our trade deficit–reducing imports and helping exports. Many economists say that even if that were the right goal for tax policy, the border adjustment wouldn’t achieve it: The dollar would appreciate to cancel out any benefit for exporters or disadvantage for importers. Importers aren’t willing to trust that the dollar will adjust completely and rapidly, and are generally opposed to the tax.

Now supporters are talking about phasing in the tax. Maybe a phase-in will allay importers’ concerns. But it also destroys the trade-deficit argument for the border adjusted tax. Enacting a phased-in border-adjusted tax makes it much more likely that the dollar will appreciate in anticipation of the tax. If that happened, the net effect would be to increase imports and decrease exports during the phase-in. That’s the opposite of what proponents have been saying they want.

Update: I see Veronique de Rugy was way ahead of me. She also quotes my AEI colleague Stan Veuger, who notes that a phase-in would also reduce the revenues that are one of the other chief selling points of the border-adjusted tax.

Ramesh Ponnuru is a senior editor for National Review, a columnist for Bloomberg Opinion, a visiting fellow at the American Enterprise Institute, and a senior fellow at the National Review Institute.

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