Ideas. Action. Results.

The unknowns about currency


Wednesday, February 1, 2017

HERE’S THE THING: It’s probably not a stretch to say that the House GOP’s destination-based cash flow tax relies on the dollar appreciating to work. And how exactly would that plan affect the dollar? No one seems to know for sure, as our Brian Faler reports.

Wall Street banks have dubbed the theory that the dollar will appreciate because of border adjustability “theoretical,” among other things. And even those disposed to liking the framework say a stronger dollar isn’t a slam dunk. “As far as I know, there’s no good evidence on what adding a border adjustment does to exchange rates,” said Bill Gale of the Brookings Institution. “The exchange rate reaction to the border adjustment, to me, is the biggest uncertainty in tracing out what the effects would be”…

One potential question: Would the border adjustment framework currently being sought by House Republicans definitely be Byrd rule compliant? Bill Hoagland of the Bipartisan Policy Center, a longtime Senate budget staffer, isn’t so sure. Hoagland told Morning Tax that border adjustability might not have a direct budget impact on its own, because what he called the “underlying plumbing system” needed to implement the system could be subject to appropriations. “This will be a close call,” Hoagland said.