The head of the Federal Reserve’s New York branch is questioning House Republicans’ plan to create a new tax on imports.
“It’s a pretty dramatic change,” Federal Reserve Bank of New York President and CEO William Dudley said. “It will probably lead to a lot of changes in the value of the dollar (and) the price of imported goods in the U.S. I’m not sure that would all happen very smoothly, and I also think there could be lots of unintended consequences.”
Dudley spoke at Retail’s BIG Show last week, where the proposal was a top concern for many of the nearly 35,000 attendees gathered from around the world.
Under the “Better Way” tax reform plan, the federal corporate tax rate would be reduced to 20 percent from the current 35 percent. But retailers would no longer be able to deduct the price they pay for imported merchandise as a cost of goods like they do with domestic products. That means they would pay tax on the full selling price of imported items rather than just their profit, resulting in tax bills three to five times as large as profits.
“It’s a pretty dramatic change ... I’m not sure that would all happen very smoothly, and I also think there could be lots of unintended consequences.”William Dudley
Federal Reserve Bank of New York
Supporters say the higher taxes would be offset by an increase in the value of the U.S. dollar and changes in foreign currency exchange rates. But Dudley said he is not confident that will happen easily.
“I’m not of the view that import prices would go up 10 percent (and) the dollar would appreciate by exactly 10 percent so that the value that retailers pay for the imported goods would be exactly the same in dollar terms,” he said. “I’d like to see corporate tax reform and I’d like to see something that does reduce some of the distortions that occur, but I want to see something I think that is probably a little bit less dramatic.”
Watch a video of Dudley’s comments at Retail’s BIG Show 2017.