What is the MAC?
It would be a small charge of probably 1-3% that would be collected on all foreign-source money entering America. This fee, which would be less than half of the recent Fed Funds Rate increase and a tiny fraction of tariffs on China, would reduce or eliminate the profits of the “carry traders” who borrow money at low interest rates abroad and invest it at higher rates here.
How would the MAC Work?
By reducing speculative interest rate and currency appreciation gains, the MAC would sharply reduce the currency speculation that, for the past 50 years, has been making foreign goods artificially cheap and American goods artificially expensive. Although the MAC would obviously not be a “magic bullet” that ends all of our problems forever, it is vitally needed to help assure the success in the following important areas. See my blog for more details (address below).
Reduce Trade Deficits: The MAC would gradually move foreign currency values per dollar to trade-balancing levels in a non-disruptive manner. This would eliminate America’s serious trade deficits and reduce our net debt to foreigners – which are arguably the worst in the world.
Increase Good Jobs, Income Distribution, and Socio-Political Unity/Tolerance. Trade deficits are not just a number in a table. They reflect the loss over the past 50 years of millions of good jobs, largely in manufacturing, of family incomes and security, of communities, and of entire “rustbelt” regions of America.
These losses contribute directly to the income inequality and socio-political polarization that are tearing apart our country today. By eliminating US trade deficits, the MAC would help eliminate all of these problems as well.
Eliminate Budget Deficits. Another symptom of America’s severe polarization is the inability of Congress to pass the legislation needed to keep the government open, pay our bills, and to put our country back on the path to the American dream of putting America back on the path to the American Dream of sustained economic growth based on rising productivity, not rising debt, with benefits shared widely by all Americans.
A key reason for this dangerous situation is that Government revenues are not sufficient to pay for the programs needed to ensure a more equitable society. (America ranks near the top of the developed OECD countries ranked by income inequality).
Some would argue that Americans are already too heavily taxed to solve our budget deficit and inequality problems by raising taxes, However, if one ranks the 34 relatively developed countries in OECD (including countries like Mexico and Chile) by taxes as a share of GDP, we are only three positions from the bottom.
The MAC offers an excellent solution to this thorny problem: Even at a very low rate of 1.5%, the MAC could generate up to $1.35 trillion of direct revenues per year – all out of the pockets of foreigners. Thanks to increased GDP growth, another $0.15 trillion would come from existing taxes – a total of about $1.5 trillion. As last year’s budget deficit was $1.4 trillion, the MAC might well generate enough revenue to eliminate the deficit and to start reducing the public debt.
Reduce Financial Sector Instability. Swings in interest rates driven by the need to fight inflation contribute to wide swings in asset prices and to the risk of market crashes that hurt all Americans, directly or indirectly. The MAC would sharply reduce such swings.
Reduce Inflation and Recession Risk. (See blog of 2024.01.22 for more on this point.)
Summary. The MAC is a sensible, flexible, easy way to fix some of our most pressing political, social, and economic problems. We need to act now to help all Americans.
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