The Market Access Charge (MAC) would operate as follows:
Trigger
· A U.S. trade deficit exceeding one percent of GDP over the past 12 months (the review period) would trigger a non-zero MAC rate. [2] [3]
Rate
· Once the trigger deficit rate was exceeded, the initial MAC rate would be a charge of 50 basis points on the value of the incoming foreign capital.
· At the end of each review period (say every twelve months) data on the trade deficit as a percentage of GDP would be reviewed to see if the MAC charge should be increased or reduced.
· The rate would rise or fall in line with changes in the trade deficit according to an elasticity factor. For example, if the elasticity factor were set at one (1.0), an increase in the trade deficit equal to one percent of GDP would increase the MAC charge by one percentage point (100 basis points). As the trade deficit began to fall relative to GDP, the MAC rate would decline in the same way, returning to zero once the trade deficit dropped below a very manageable one percent of GDP for the previous twelve months.[4]
· Transition: If the trade deficit exceeds the one percent of GDP trigger at the time the MAC is approved, the initial MAC charge would be set at 50 basis points, then raised by 50 basis points every six months until the average trade deficit over the past twelve months began to decline.[5]
Base
· All capital inflows would be subject to the same MAC rate. Applying the same rate to all foreign capital inflows is needed to avoid the problems of evasion, corruption, favoritism and economic distortions that other countries like Brazil encountered with capital inflow charges when they tried to discriminate between “good” and “bad” capital inflows.
· Because of the MAC’s design, a common rate for all inflows automatically discourages short-term speculative in-and-out flows because the MAC is charged every time foreign capital enters the United States. Conversely, a common rate imposes a minuscule effective burden on the life-time yields of foreign direct investments because such investments come in only once, stay for a long time, and almost always have a much higher expected rate of return per dollar invested than speculative investments do.
Administration
· The MAC would be collected automatically and electronically on all foreign capital inflows by the computer systems already present in the handful of U.S. banks that handle most of America’s cross-border financial transactions. Under contract, these banks could also service incoming cross border transactions for other banks.
· Foreign investors seeking access to US financial markets would pay the Market Access Charge. The MAC is not a tax on Americans.
· The MAC charges collected would automatically and electronically be transferred to the Federal Reserve as the nation’s executing authority for monetary policy. Part of the charges would be retained by the Federal Reserve to execute countervailing currency interventions as proposed by Bergsten and Gagnon. The remainder would be transferred to the U.S. Treasury. However, to prevent the Government’s becoming “addicted” to MAC revenues to finance normal budgetary programs, MAC revenues would be placed in a separate “American International Competitiveness Account” (AICA).
· AICA funds could be used for programs designed to improve the global competitiveness of American enterprises and workers. Eligible AICA programs could include, for example, the National Network for Manufacturing Innovation (NNMI), other types of support for R&D, worker training and trade adjustment assistance programs, infrastructure development, a Bank for America’s International Competitiveness to help finance productivity-enhancing private sector investments in plant and equipment, more efficient border protection operations including anti-dumping and countervailing duty programs, the repurchase of foreign-held U.S. government debt, and a special fund to help offset any increased costs of borrowing to finance government operations linked to MAC charges on the purchase of government debt obligations.
