House Republicans’ import tax proposal would crimp exports as well as imports, according to a new analysis from the Federal Reserve Bank of New York that is the latest blow against the tax reform plan backed by House Speaker Paul Ryan, R-Wis.
“An unintended consequence of the proposed border tax is that it is likely to depress rather than stimulate exports,” researchers at the regional Fed bank wrote in a note published Friday.
That conclusion is a strike against the Republican tax reform plan, which is supposed to boost exports, not hurt them. It includes a border adjustment feature in which imports are taxed at the corporate tax rate, but exports are exempted, in a bid to prevent companies from moving jobs or headquarters overseas.
But the New York Fed researchers suggest that, if the dollar appreciates in response to the border adjustment as predicted, trading partners will look to buy goods from other countries with cheaper currencies.
Friday’s analysis is not the first time the Fed system has criticized the House Republican proposal. Last week, Fed chairwoman Janet Yellen said in congressional testimony that there was “uncertainty” about whether the dollar would appreciate in response to the import tax, potentially hurting companies that import.
The plan, key to overall tax reform, has come under increasing fire in recent weeks.
On Thursday, however, it got a lift from President Trump, who suggested in brief comments to Reuters that the border adjustment might create jobs.
