Former Federal Reserve Chair Ben Bernanke mostly praised the border adjustment tax proposal and suggested that Republicans just have not presented the plan in the best way.
The plan is “very interesting. Some of the best public finance economists, Alan Auerbach, people like that, have advocated this system and I think it’s been sold in kind of a bad way,” Bernanke said Monday on CNBC’s “Squawk Box.”
“It’s not really about trade. It’s not really about imports and exports. It’s about where revenue’s taxed. The idea is revenues should be taxed where it’s earned,” he said, noting it has “a lot of appeal in many ways,” such as eliminating incentives for companies to move their headquarters overseas for tax reasons and reducing accounting confusion over where profits were earned.
The plan would tax corporate profits generated domestically at a lower rate than earnings generated overseas, thereby favoring exports over imports. Retailers and oil refiners have spoken against the plan since their industries bring product from foreign countries to sell into the U.S. and would likely face higher costs.
Bernanke said that in order for the proposal to work, the U.S. dollar would need to strengthen — some estimate by 25 percent — and that would eliminate the tax plan’s negative effects. A stronger greenback would increase U.S. companies’ purchasing power, lowering the cost of overseas manufacturing and theoretically resulting in no net additional charge.