“Investors may be in for a rude shock," said Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics and a former senior economist and associate director at the U.S. Federal Reserve Board.

Border adjustability is key to Ryan’s plan for the most ambitious overhaul of the U.S. tax code in three decades because it’s estimated to generate about $1.1 trillion in revenue over a decade, according to an independent analysis by the conservative Tax Foundation, a Washington policy group. That increase would help to offset corporate and income tax cuts. Keeping tax reform deficit neutral is a prerequisite for passing a tax bill through the Senate without Democratic votes.

AshLee Strong, a spokeswoman for Ryan, didn’t respond to an e-mailed request for comment about how border adjustments would affect U.S. investors who hold foreign assets.

Proponents of the border-adjustment measure say the dollar would strengthen because taxing imports would reduce domestic demand for them, which means fewer dollars would end up overseas. That relative scarcity would push the dollar’s value up compared to other currencies.

At the same time, exempting companies’ exports from taxation would allow U.S. producers to lower their prices overseas. Lower prices would attract more foreign buyers, who’d need more U.S. dollars to make purchases. Their increased demand for the dollar would also push its value up.

Euro Dividends

So even though importers would pay higher taxes, their after-tax income -- and consumer prices -- wouldn’t be affected, because a stronger dollar would lower the cost of their imported materials, said Alan Auerbach, an economist at the University of California Berkeley, who supports the border-adjustment plan. He expects the stronger dollar would largely even out the cost of the import tax, he said -- meaning there’d ultimately be no real cost increase for businesses to pass along to consumers.

Auerbach said he expects the dollar to rise in value by 25 percent if the border tax is implemented, and he acknowledged there would be consequences for U.S. investors who hold foreign assets.

For example, if a foreign stock pays dividends in euros, and an investor wants to convert those euros to dollars, the investor would get fewer dollars as the U.S. currency strengthens.

Foreigners Gain