openpolitics.com

Paul Ryan’s Tax Plan May Not Do What Trump Says It Will

Every expert I spoke with agreed on one point, however: If Trump is looking to make new jobs, this isn’t the way to do it. Indeed, he may be expecting the economically impossible.

.. At first, this may seem unfair to importers.They have to pay a bunch of new taxes, and unless they’re selling things abroad, they’re stuck with all the old taxes, too. But for the millions of workers who saw their jobs go overseas, this could be exciting: Finally, those greedy corporations are getting their comeuppance. They thought they were saving money by moving production to Mexico? Now they have to pay up!

 .. if Congress passes Ryan’s plan, most economists expect the value of the dollar to go up

.. This will make imports cheaper—cheap enough that the new tax doesn’t really matter.

.. At the same time, the stronger dollar makes the prospect of tax-free exports a bit less exciting. Sure, our Pennsylvania woodworker isn’t paying any taxes on his sales to Mexico—but since the dollar has appreciated in value against the peso, Mexican decorators can’t afford to buy as many tables. So the woodworker brings in less revenue.

In short, it’s a wash.

.. In all his years, he’s never seen the strength of the U.S. dollar as having much of an impact on his bottom line, largely because his supply chain always accepted American currency, and rarely dealt with local fiat.

.. For every car built in the United States, a quarter of its parts were imported from outside the country; the Chevy Silverado alone gets more than half of its components from overseas. With those parts marked up because of the tax, cars themselves become more expensive—and workers risk losing their jobs when demand drops.

.. If Ryan’s proposal works as planned, the world economy’s relentless swerve toward equilibrium would make imports cheaper and erase any economic pressure to move jobs to America. And if the plan goes off the rails, the economy will likely be hit so hard that no one will be celebrating the fact that America is making stuff again.