Retail Industry Leaders Association (RILA) issued the following statement in response to news reports that House Ways and Means Committee Chairman Kevin Brady (R-TX) floated the idea of a 5-year phase-in of the widely-criticized border adjustment tax. Chairman Brady proposed the approach in remarks delivered at the annual Wall Street Journal CFO conference.
“Forcing consumers to pay more so that some profitable companies can operate tax-free is no better of an idea in five years than it is today,” said Brian Dodge, senior executive vice president for public affairs.
Border adjustment tax backers rely upon a widely disputed economic theory that suggests that the dollar will appreciate 25 percent to offset the impact to business and consumers due to the new tax on imports.
An economic report released recently by the macroeconomics firm, Capital Economics, found that outlined the folly of believing that currency will adjust to offset impact on consumers.
According to the report:
“There are substantial reasons for believing that [full currency appreciation] will not occur, especially in the short run, but even over medium to long run timeframes and therefore it is not worth the risk of attempting it.”
“The notion of the border adjustment tax causing dollar appreciation is based on a simplification of currency markets, which are highly complex. The proposed measure has not been tried in any other country and there are many issues that pose a large number of questions as to what the consequences would be. Available empirical and anecdotal evidence casts doubt on basic exchange rate theory. Multiple barriers to adjustment plus the fact that traded goods and services only have a limited – possibly small – influence in determining exchange rates in today’s world of speculative capital flows means that we expect that most of the proposed appreciation is likely to fail to occur. Some adjustment could occur, but, given the considerable obstacles, we expect it to be no more than 30 per cent of the anticipated total, and it could well be a good deal less than that.”
RILA is the trade association of the world’s largest and most innovative retail companies. RILA members include more than 200 retailers, product manufacturers, and service suppliers, which together account for more than $1.5 trillion in annual sales, millions of American jobs and more than 100,000 stores, manufacturing facilities and distribution centers domestically and abroad.