Tags: Martin Feldstein | border tax | Donald Trump | trade

Martin Feldstein: Border Tax Will Hurt Foreign Exporters

Martin Feldstein: Border Tax Will Hurt Foreign Exporters

By    |   Monday, 27 February 2017 10:24 AM

A levy on goods coming into the U.S. is a good idea and should be part of President Donald Trump’s plan to change the tax code while hurting exports from other countries like China and Mexico, says Martin Feldstein, a Harvard professor of economics who advised President Ronald Reagan.

“The border-adjustment tax would not hurt American consumers or businesses,” Feldstein writes in The Wall Street Journal. “But it would raise $1 trillion over the next decade from foreign exporters. That revenue is enough to finance almost all of the proposed reduction in the corporate tax.”

Trump pledged during his presidential campaign to cut taxes, spur job growth and increase spending on roads, bridges and airports. Critics say a tax on foreign trade would raise prices for U.S. consumers who ultimately would bear higher costs.

The House Republican tax plan would the corporate tax rate to 20 percent from 35 percent, while imposing a 20 percent tax on all imports while giving a 20 percent subsidy to all exports.

"Imports constitute about 15 percent of American gross domestic product, so the 20 percent tax would raise revenue equal to 3 percent of GDP,” Feldstein says. “On the other side of the ledger, exports are about 12 percent of American GDP, meaning the subsidy would cost the Treasury only 2.4 percent of GDP.”

He estimates the border tax would raise about $120 billion a year and more than $1 trillion over the next decade.

“Retailers and importers understandably fear that the tax would raise the cost of their products and inputs, ultimately increasing prices for consumers,” Feldstein says. “But the border-adjustment would also cause the international value of the dollar to rise, reducing the cost of imports by enough to offset the tax.”

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A levy on goods coming into the U.S. is a good idea and should be part of President Donald Trump's plan to change the tax code while hurting exports from other countries like China and Mexico, says Martin Feldstein, a Harvard professor of economics who advised President...
Martin Feldstein, border tax, Donald Trump, trade
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2017-24-27
Monday, 27 February 2017 10:24 AM
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