[Editor's note: 1031Gateway supports the efforts of groups like www.SaveThe1031.org, which is exposing the devastation this tax reform proposal would unleash on our economy and mobilizing Americans to make their opposition known to Congress in order to stop this bill. Please visit www.SaveThe1031.org and fill out their form to directly send individual letters to your representative and senators in Congress, urging them to fight for the 1031 exchange.]
"...the proposal could have costly unintended consequences — especially for the elderly.
Retirees are financially vulnerable to rising prices, or inflation, which is one possible result of the GOP plan. If the proposal sets off inflation, many households would benefit from increasing wages and salaries. Meanwhile, some retirees would pay more at the cash register without the benefit of a fatter paycheck."
"...according to a new report published this week by the nonpartisan Peterson Institute for International Economics, other countries that have implemented border adjustments have often seen inflation follow."
"Those most negatively affected would be households with savings invested in bonds, certificates of deposit and other fixed-income securities."
"For example, in the year after New Zealand imposed a 10 percent tax with a border adjustment in 1986, inflation accelerated by seven percentage points, according to Freund and Gagnon's report. A three percentage point jump followed when Australia implemented a similar tax in 2000.
Inflation would eventually cancel out the advantages of domestic products."
"...the scale of the Republican plan is massive compared to similar policies implemented elsewhere. New Zealand and Australia implemented border-adjusted taxes at rates of 10 percent, while the Republican plan calls for a 20 percent rate, and many observers think any reform that is ultimately enacted might impose an even higher tax.
Over the long run, economists say that a 20 percent rate adjusted at the border implies a 25 percent increase in the cost of U.S. goods, services and labor in terms of foreign currency. It is difficult to know how the economy would respond to such a shift. Yet even if most of the adjustment occurs through an appreciation of the dollar and only partially as a result of inflation, the effect on households budgets could be serious."