Border Tax Adjustments: Assessing Risks and Rewards

Policy Brief
17-3
January 2017
Photo Credit: 
REUTERS/Gary Cameron

Border tax adjustments—achieved by denying business deductions for imported goods and services and excluding exports of goods and services from the tax base—will be hotly debated as a key feature of the cash flow tax proposed in the Blueprint of House Speaker Paul Ryan and Ways and Means Committee Chair Kevin Brady. This Policy Brief examines border tax adjustments from the perspective of their compatibility with World Trade Organization (WTO) rules, their possible impact on the dollar exchange rate, and the resulting effects on tax incidence brought by exchange rate movements. The authors conclude that not only are dogmatic assertions on the WTO compatibility of BTAs unwarranted but so also are confident predictions of the induced exchange rate impact. The Trump administration and Congress will need to evaluate BTAs from different angles, realizing that decisions taken will carry the US economy into uncertain terrain.