The president and CEO of the New York Federal Reserve warned today that a controversial border adjustment tax proposed by House Republicans would have "unintended consequences" for U.S. consumers by dramatically raising the cost of imported goods.

Speaking at a keynote session at the National Retail Federation's (NRF's) annual conference in New York, William Dudley said the proposal, which would exempt U.S. exporters from taxes on the sale of their goods but would tax the sale of imported goods, represents a "dramatic change" in the corporate tax code that may not go smoothly as the plan's supporters predict. If not, U.S. consumers could experience significant price increases as retailers are forced to pass along their increased costs, Dudley said.

The provision, included as part of comprehensive tax reform proposed in mid-2016 by House Majority Leader Paul D. Ryan (R-Wis.) and Ways and Means Chairman Kevin Brady (R-Texas), would end retailers' ability to deduct the cost of merchandise that they import. Retailers would thus be taxed at nearly the full selling price of imported merchandise rather than just their profit.

For example, an exporter that spent $80 on a product that it sold overseas for $100 would pay no tax on its earnings. A company that imported goods worth $80 from abroad and then sold them domestically for $100 would pay tax on the full $100.

In theory, such a revision would result in a big boost to the U.S. dollar, making U.S. imports more price competitive and offsetting the impact of the tax hit. However, should the dollar not rise to anticipated levels, retailers with thin profit margins could get severely hit, critics contend.

Dudley acknowledged that the nation's corporate tax system is in need of an overhaul. However, he cast doubt on whether such a concept is a part of the answer. "I'd like to see corporate tax reform and I'd like to see something that does reduce some of the distortions that occur, but I want to see something, I think, that is probably a little less dramatic," Dudley was quoted by NRF as saying at today's event.

Not surprisingly, U.S. retailing interests are up in arms over the proposal. Retailers will need to increase prices by as much as 15 percent just to stay profitable, effectively creating a new form of consumption tax on Americans, the group said.

"Economic theorists are playing with fire, and it's the consumer who ultimately will lose," said David French, NRF's senior vice president for government relations. "The best way to grow our economy is for Congress to lower tax rates for all businesses, not pick winners and losers."