Economics

特朗普征税计划与美元

Jan 3, 2017 Emmanuel Farhi , Gita Gopinath, and Oleg Itskhoki

发自剑桥——如今唐纳德·特朗普即将上任美国总统而共和党人控制了国会参众两院，公司税改革也因此即将降临美国。目前正在讨论的方案涵盖两个重要特征：降低税率，从目前的35％减到20％甚至15％；以及“边境调整”税，该税具备典型的增值税制特征，但作为公司税则不甚常见。

边境调整税会将国内采购的产出和进口产出区分对待，并鼓励出口。企业无法继续从其应税收入中扣除进口产出的成本；但同时它们的出口销售收入也不会征税。

该提案引发了一场激烈的辩论，双方对于其能否改善美国的贸易平衡状况各执一词。在共同发表了关于“财政贬值”的论文之后，我们认为边境调整税的效果极为有限，并可能严重损害美国的国外资产净头寸。

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0 Comments on this paragraph, 16 Comments on this article

Tore Olsen Jan 10, 2017

Tony Lantley: Like you, I first read the article focusing on the fall in the marginal corporate tax rate, which is more likely to be implemented than the border adjustment part. However, Fahri et al try to argue how the border adjustment would play out and what you describe in your comment is not how the border adjustment works.

For details, see for example http://taxfoundation.org/blog/house-gop-s-destination-based-cash-flow-tax-explained and to play with a calculator see here: https://ospc.shinyapps.io/border-adjustment-calculator/. Personally, I think capital flows (and therefoer the trade balance) will be affected and that we would not see a full currency adjustment. Also recall that some of these effects on the exchange rate get priced in before any change in the regime takes effect.
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Tony Lantley Jan 10, 2017

Please explain how this makes sense: If I read it right, the authors argue that a 20 percentage point reduction in the marginal corporate tax rate (from 35% to 15%) constitutes a "20% tax cut [which] will push the value of the dollar up by 20%". Could someone walk me through i) how changing the marginal tax rate for corporations by 20 percentage points while also changing the tax basis would amount to a "20% tax cut". ii) how a "20% tax cut" (presumably meaning a 20% reduction in tax revenue from corporate taxation) results in a 20% appreciation of the dollar.
- Robbie Henderson Jan 10, 2017
  
  Great question. It is the Border Adjustment Tax that drives the 20% $ appreciation, not the 20pp drop in Corporation Tax. Because import costs are excluded from a firm's tax base they become 20% more expensive (assuming the new 20% corporate tax rate) and export revenues are excluded from taxable income, making exports 20% less expensive. The assumption is that overseas buyers purchase more (now cheaper) US product and domestic buyers purchase less (now expensive) overseas product. This results in greater demand for $s to buy US Exports, and lower supply of $s sold to fund overseas imports. This arbitrage continues until the price differential created by the border adjustment closes, logically with a 20% appreciation of the $. The reality is complicated by a persistent trade deficit (see Puglisi comment below) and only ~50% of world currencies floating. Does this model also require an assumption of perfect competition (why should exporters not just capture the tax windfall by not reducing prices) and does the model assume that exports and imports have same elasticity of supply/demand? (If someone could reference another source to answer these questions I'd be truly grateful.)
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- Tony Lantley Jan 10, 2017
  
  My apologies for the accidental double posting.
  
  Say I am a company exporting a made-entirely-in-the-USA-widget for $1,000, making a $100 profit and having costs of $900. Let's pretend that input costs don't change. With Trump’s proposed 15% marginal corporate tax rate (instead of 35%), I get a take-home pay after taxes of $85 instead of $65. Under the new tax regime, I can lower my sales price by $23.53 (=2.35%) to $976.47 and still make the same $65 after-tax profit as before. Meanwhile, if Fahri et al. are right that the dollar appreciates 20% the product would just have become app 17.2% more expensive in the foreign currency for a constant after-tax dollar profit.
  
  If we add a border adjustment such that I am not taxed on my exports at all, then I can reduce the price of the widget by $35 dollars and still make the same $65 after-tax profit. That would amount to a reduction of 3.5% in the dollar sales price. Meanwhile, if Fahri et al. are right about the 20% appreciation of the dollar, that would make the widget 15.8% more expensive in foreign currency for a constant after-tax dollar profit.
  
  With or without the border adjustment, a 20% appreciation of the dollar would lead to a *loss* of competitiveness and a *fall* in exports at constant post-tax profits. This suggests there is a problem with Fahri et al.'s assertions that a 20 percentage point reduction in the marginal tax rate for corporations i) would lead to a 20% appreciation of the dollar, and that ii) "this, in turn, will offset any competitiveness gains.”
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Tony Lantley Jan 10, 2017

Please explain how this makes sense: If I read it right, the authors argue that a 20 percentage point reduction in the marginal corporate tax rate (from 35% to 15%) constitutes a "20% tax cut [which] will push the value of the dollar up by 20%". Could someone walk me through i) how changing the marginal tax rate for corporations by 20 percentage points while also changing the tax basis would amount to a "20% tax cut". ii) how a "20% tax cut" (presumably meaning a 20% reduction in tax revenue from corporate taxation) results in a 20% appreciation of the dollar.
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Paul Daley Jan 8, 2017

Countries committed to a floating rate don't have central banks with $4 trillion balance sheets. The problem with Paul Ryan's tax plan is that offering tax exemptions to US suppliers alone is completely equivalent to placing tariffs on imports. And, like tariffs, such one sided tax exemptions tend to destroy world trade.

Congress would be much better off to establish a standard value-added tax to replace a large portion of our income and payroll taxes. Value-added taxes don't have the problems with residency that plague income taxes and are much harder to evade.

And if protectionism is now part of the US agenda then a more sensible place to start would be with the flood of foreign savings that Fed policy has encouraged. There are many possibilities in that area including higher risk ratings for foreign deposits and liabilities in the banking system, higher capital and liquidity ratios, an end to asset price support programs like QE, and new channels of action for the FED that would allow it to bypass financial markets in delivering stimulus to the US economy.
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Philip Verelger Jan 8, 2017

This is excellent. However, one can go further. The BIS reports non-domiciled Firms, banks and governments have $10 trillion in dollar denominated debt. The trade-weighted value of the dollar gas already increased by around 35 percent from its low around five years ago. A further 25 percent increase could lead to significant debt problems as seen in the 80s with Latin America and the late 90s with Asia. The proponents of the tax are playing with fire.
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Robert Guy Danon Jan 8, 2017

Your premise is based on the assumption that owing to a floating exchange rate the US dollar will appreciate as much as the corporate tax reduction eroding any competitive gains form the reduction in the tax rate. This is very debatable on the one hand and not necessarily permanent on the other. A tax reduction increases long term investment in capital goods which includes investment in export minded companies. Whilst a currency by its mere definition is in constant search of equilibrium. You are thus comparing investment in capital goods and equipment on the one hand with a short term fluctuating price mechanism. Not comparable. Furthermore if I am an international investor who is seeking to manufacture in a particular country I will invest where there is a favourable tax treatment of my investment as well as the prospect of a stable or longer term appreciating currency.
- Robert O'Regan Jan 8, 2017
  
  At last, clear argument to show that it is not comparable. Is myopia a condition of employment for these people?
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eusebio manuel Jan 8, 2017

And Brexit wow . The Brits think that they will do okay under WTO rules but imagine if Europe taxes imports from the UK at full rather than added value The entire world will endure a really big shock under this system but the Brits they II get it on steroids
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Paul Daley Jan 4, 2017

True, as far as it goes. But there are lots of ways to lean against a capital flow that an appreciating dollar will create. Taxes on capital are the obvious measures, but with a Republican administration you're more likely to get monetary measures like higher prudential requirements and lower than expected interest rates; in short, some good old financial repression to support adjustment in the trade account.

Paul Ryan's border adjustments to taxes just brings the US a little closer to the world norm of value-added taxes and closes the incentive to locate operations abroad. It needs support from monetary policy, but there is nothing new about that.
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M M Jan 3, 2017

As a basic rule, one must never criticise a plan that has not been devised, not yet agreed or even executed. In the absence of these elements, there can only be sheer speculation. If one is to criticise anything, one must criticise the existing plans, policies, rules and regulations of the incumbent, the ones that have been in force and executed and have destroyed the lives of millions in the US and around the world.
- M M Jan 4, 2017
  
  My Dear Carsten,, obviously, English is not your first language. Better read again what was said in my first comment and you will see who is exactly the stupid.
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- Carsten Schmidt Jan 4, 2017
  
  M M ... if find your comment "to never criticize a plan that has not been devised yet" rather, sorry for my lack of finding a less offensive word here, but stupid is the only one hat comes to mind. So with that logic no debate, discussion about a future plan is allowed, until that plan is executed? I am not sure if you work in a business or ever have but i would hope that the executive, management teams of those companies did actually debate and discuss strategies and plans before they were execute upon. Now Trump does not provide much information about his plans but i think it is important to have a debate about their potential consequences. i would even go as far as to say criticize the crap out of a plan but then once you agree on it make sure you give it time to deliver the expected benefits rather than questioning it too soon.
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Tim Chambers Jan 3, 2017

America used to have the wealthiest market in the world's economy. No more. The American consumer has been broken by years of layoffs, wage deflation and credit fueled consumption of cheaply manufactured goods, produced overseas by American firms, or under contract by foreign firms that have no control over price. The result is that the foreign firm controls the quality and that is often so poor that the product won't last beyond first use. That keeps the poor consumer on treadmill, constantly replacing the cheap stuff bought just weeks before.

Thus, it would seem to me that the goal of the border adjustment tax is to reduce the practice of Mercantalism we've engaged in under the the past thirty years. I find it inexcusable that companies should be permitted to put Americans out of work just to juice their profits and ease the pain of unemployment by offering them WalMart as a place to spend their benefits. If they want to produce goods cheaply for consumers in emerging markets, they can do so overseas and sell those products overseas.

If a border adjustment tax keeps the supply chains here at home, and helps provide people with decent jobs, then I am all for it.
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