As you know, Speaker of the House Paul Ryan wants to pass a massive package of tax cuts for the rich ("tax reform") that will be financed by a new border tax.
The idea that a border tax alone could pay for Ryan's tax cuts is dubious, but Ryan's plan also apparently depends on what could be described as dynamic scoring for currency value.
Republicans often use dynamic scoring or "magic asterisks" to make their tax cuts look better than they really are by assuming that wealth and economic activity will trickle down to the rest of us, but Ryan's tax plan uses it to assume that the increased value of the dollar will help average people afford to buy basic necessities after the border tax is implemented.
In Washington D.C., one of the selling points of an ambitious border-tax plan rests on a key economic assumption: The dollar will appreciate enough to offset any increase in the cost of cheap, imported goods that so many Americans have come to rely on.
But on Wall Street, traders and strategists who make a living in the $5.1-trillion-a-day currency market say such notions are preposterous. Even if congressional Republicans can set aside their differences to pass the proposed border-adjusted tax -- a prospect that seems more remote with each passing day -- you’d be hard-pressed to find anyone in the market who believes it will result in the greenback strengthening 25 percent, as the plan suggests. [...]
What’s more, the appreciation that Republicans promise may be delivered in the form of inflation instead of a stronger dollar. That happens when retailers pass on the tax to consumers or when sellers of locally produced goods raise prices to take advantage of increased demand. So it’s really the inflation-adjusted dollar (often known as the real exchange rate) that adjusts rather than the nominal rate, which JPMorgan estimates may rise as little as 6 percent versus major trading partners.
That's a lot to take in, and Bloomberg covers the issue in-depth but, to make a long story short, Paul Ryan's plan assumes something will happen that probably won't happen.
Ryan's plan assumes people like you and I will be able to afford things like fruits and vegetables because the value of the dollar will increase and those savings will be passed on to us, but the value of the dollar may not increase as much as he thinks it will and the savings may not be passed on to us.
That's isn't necessarily a surprise -- Paul Ryan's plans always assume things that probably won't happen -- but this is news to me and it makes passing a border tax seem even more preposterous.
The various ways in which Republicans intend pay for their tax cuts could do more damage than if they simply didn't pay for them.
At this point I'm skeptical that Republicans will be able to pass anything, but if they do we should all hope they don't pay for it.
I never thought I'd say that, but the alternatives are much worse.