September 24, 2015

How Much Government Revenue Would a MAC Charge on Foreign Investors Generate?


Estimating the revenues that a MAC charge could generate is exceptionally difficult because this policy tool has never been used in a large, wealthy, reserve-currency country. Policies involving charges of various kinds on some types of capital have been tried in relatively small economies such as Chile, Brazil and Malaysia. But nothing like the MAC has ever been tried in the United States. We therefore have little basis for estimating the response of foreign speculators and investors to the MAC and thus potential MAC revenues.

Nevertheless, it is useful to know the range within which the revenues might fall – if for no other reason than to satisfy curiosity. To help meet this need, two models are presented here based on cases designed to bracket the range of revenue that the MAC might generate.

Summary

In brief, the MAC is likely to generate at least $1.0 billion per year in the short term and could possibly generate up to $1.0 trillion per year if high-speed, in-and-out trading is not moderated by the MAC.

In the longer term, as the MAC moderated excessive foreign capital inflows, MAC revenues would decline. However, this reduction would be offset partially or fully by taxes on the additional economic growth stimulated by a MAC-based competitive exchange rate -- even if tax rates were reduced as part of a much-needed reform of the US tax code.

September 21, 2015

Why a MAC charge on FDI will Stimulate FDI


A common question from ABDC Now! readers: 
"Why not exempt foreign direct investment from the MAC?  Imposing a MAC charge on all incoming capital would discourage investments in physical assets that could improve American manufacturing's productivity and international competitiveness,"
The answer is quite simple and revolves around two issues -- (a) the need to create a level playing field that minimizes the risk of distortions, evasion, and high administrative costs, and (b) the fact that, because of its very design, the MAC creates a natural bias in favor of FDI.