Manage the US dollar to pay for congressional infrastructure plans

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Congress is working hard to pass an infrastructure package that could potentially invest billions of dollars in America’s bridges, ports, railways, and electricity grid. But members of Congress from both parties still face a serious obstacle: how to pay for it.

There is a ready made way to provide money for an entire infrastructure program, and more. In fact, the right approach could also stimulate the economy and create up to five million additional jobs over five years while increasing GDP.

The answer lies in the transaction fees on foreign purchases of financial assets that Congress has already begun to consider. Such a charge, known as Market Access Charge (MAC), was introduced in 2019 by Sens. Tammy baldwinTammy Suzanne Baldwin Duckworth and Pressley introduce bill providing paid family leave for those who experience miscarriage Senate Democrats call for Medicaid-style plan to cover non-expanding states Biden: “Pride is back in the White House »MORE (D-Wis.) And Josh hawleyJoshua (Josh) David Hawley White House seeks to calm battle with Facebook Graham, Hawley calls on judicial committee to hold US-Mexico border hearing Candidate Biden ICE pledges to honor agreements with US forces local order PLUS (RM.). Their Competitive Dollar for Jobs and Prosperity Act would bring the U.S. dollar back to a more competitive level – and has since gained bipartisan support on Capitol Hill.

The MAC would increase exports by double-digit percentages for US manufacturers and agricultural producers. But the great advantage of such management of the dollar is that it would probably bring in between $ 100 billion and $ 200 billion each year for the US Treasury. Best of all, every dollar of those fees would be paid for by foreign investors, not Americans.

The MAC works in a simple way. It imposes a one-time charge on foreign purchases of dollar-denominated assets such as treasury bills or stocks. These fees would help facilitate the flow of international capital to the United States, which is currently pushing the dollar to its overvalued and uncompetitive level.

For nearly 50 years, the value of the dollar has remained too high. This created a flood of imports, crippling the US manufacturing sector and depressing the prices realized by the country’s farmers.

Successful countries manage their currencies to ensure that their economy is competitive. Taiwan is a good example: it manages its currency to control the country’s trade balance and stimulate exports. As a result, this island nation of just 23 million people now dominates global semiconductor manufacturing.

The MAC would be managed by the Federal Reserve, just as the Fed currently manages interest rates. Our economic modeling at the Coalition for a Prosperous America suggests that a small MAC commission of just 2% would be enough to reduce inflows of US financial assets – allowing the dollar to slide down to a competitive level. We found that a MAC of 5% would raise even more money each year. But calculations suggest that a MAC of 2% would be sufficient.

The beauty of a tool like the MAC is that it would allow the Fed to hone the dollar without stopping capital inflows. Today the world is teeming with billions of dollars in capital. Investment managers in New York, London, Tokyo, and a dozen lightly regulated island nations are managing these trillions, constantly investing and moving that money. An estimated $ 40 trillion flows into the United States each year. A MAC load of 2% would slow this influx while allowing sufficient investment to generate substantial revenue for the US government. Foreign investors would be happy to pay just a 2% transaction fee for the privilege of holding safe U.S. financial assets.

Some critics claim that a competitive MAC-driven dollar would raise inflation and interest rates. But our modeling suggests that these effects would be very small – less than a quarter of a percentage point in each case – and would be outweighed by the benefits of increased employment, output and jobs for workers and workers. American companies. Our research found that a MAC of 2% would create five million jobs in the United States over five years and increase GDP by 1% per year during that time.

The MAC would also help slow – and ultimately stop – the ever-growing US foreign debt. The United States now owes foreigners $ 22 trillion, a number that continues to grow each year. Our nation will be safer and more secure, both financially and nationally, if we can reduce our external debt and our national debt.

A competitive currency, a new flow of tax revenue, more jobs and a healthier national economy are all within our reach. Congress should adopt an infrastructure package and pay for it with a MAC.

Jeff Ferry is Chief Economist at the Coalition for a Prosperous America (CPA). Follow him on @menloferry.


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