Jan 27, 2017

Theory of the day: Border adjusted tax is pointless

Alan Viard of the American Enterprise Institute argues that in the long run a border adjusted tax, that would raise taxes on imports, will be a wash because America can't run a trade deficit forever. Eventually we'll have to run commensurate surpluses to make up for what we've spent. So when we do start running those surpluses, our tax receipts will go down, eliminating the benefit of the tax in the long run.

Counterpoint: Former Reagan economic adviser Martin Feldstein, however, emails Axios to take exception with this theory. "The U.S. has had a trade deficit for each of the past 30 years. So apparently the world is prepared to allow us to keep doing this without paying them back."

Why this matters: The Trump administration has floated a border tax to raise $10 billion to pay for a wall on the Mexican border. And even if Viard might technically be right in the (very) long run, that won't stop policy makers from trying to grab this extra revenue while they can.

Go deeper