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Posts Tagged ‘Latin America’

Is it April Fool’s Day? Has somebody in Paris hacked the website at the Organization for Economic Cooperation and Development? Have we been transported to a parallel dimension where up is down and black is white?

Please forgive all these questions. I’m trying to figure out why any organization – even a leftist bureaucracy such as the OECD – would send out a press release entitled, “Rising tax revenues: a key to economic development in Latin American countries.”

Not even Keynesians, after all, think higher taxes are a recipe for growth.

Ah, never mind. I just remembered that the OECD is a hotbed of statism, so the press release makes perfect sense. After all, the US-taxpayer-funded organization has become infamous for reflexively advocating big government.

With this dismal track record, it’s hardly a surprise that the Paris-based bureaucracy is now pushing to undermine prosperity in Latin America. Here’s some of what the OECD said in its release.

Additional tax revenues enable governments to simultaneously improve their competitiveness and promote social cohesion through increased spending on education, infrastructure and innovation. Latin American countries have made great strides over the past two decades in raising tax revenues.

You won’t be surprised when I tell you that the Paris-based bureaucrats do not bother to provide even the tiniest shred of proof to support the silly claim that higher taxes improve competitiveness. But that shouldn’t be surprising since even Keynesians don’t believe something that absurd.

And the claim about social cohesion also is a bit of a stretch given the riots, chaos, and social disarray in many European nations.

The only accurate part of the passage is that Latin American nations have increased tax burdens over the past 20 years. To the tax-free bureaucrats at the OECD, that is making “great strides.”

Let’s see what else the OECD had to say.

Despite these improvements, significant gaps between Latin America and OECD countries remain. The average tax to GDP ratio in OECD countries is much higher than in Latin American countries (33.8% compared to 19.2% in 2009, respectively). As the countries in the region still find themselves in relatively strong economic conditions, now is the time to consider reforms that generate long-term, stable resources for governments to finance development.

Wow. The OECD is implying that Latin American nations should mimic OECD nations. In other words, the bureaucrats in Paris apparently think it makes sense to tell nations to copy the failed high-tax, welfare-state model of countries such as Greece, Italy, and Spain.

Is that really the lesson they think people should learn from recent fiscal history? Are they really so oblivious and/or blinded by ideology that they issued the release as these European nations are in the middle of a fiscal crisis?

To further demonstrate their bias, the folks at the OECD even acknowledged that the Latin American nations, with their less oppressive tax regimes, are enjoying “relatively strong economic conditions.” Normal people would therefore conclude that the failed high-tax European nation should copy Latin America on fiscal policy, not the other way around. But not the geniuses at the OECD.

Now that we’ve addressed the awful policy advice of the OECD, let’s take a moment to look at the real policy challenges facing Latin America.

The Fraser Institute, in cooperation with dozens of other research organizations around the world, produces every year a comprehensive survey measuring Economic Freedom of the World.

The report ranks 141 nations based on dozens of variables that are used to construct scores for five key measures of economic freedom. Of those five categories, the Latin nations have the highest average ranking on…you guessed it…fiscal policy.

Yet the OECD wants policies that will undermine the competitiveness of the Latin nations, hurting them in the area where they are doing a halfway decent job.

If the bureaucrats actually wanted to boost economic performance in Latin America, they would be pressuring those nations to make reforms in the two areas where the burden of government is most severe – legal structure/property rights and regulation.

But that would make sense, which is contrary to the OECD’s mission of promoting statism.

The only semi-positive thing to say about the OECD is that it is consistent. As this video explains, the Paris-based bureaucrats are advocating bigger government in the United States. And to add insult to injury, they’re using American tax dollars to push that agenda.

What a scam. Politicians from various nations send taxpayer money to Paris. The bureaucrats at the OECD then issue reports and studies saying the politicians in those countries should raise taxes and increase the burden of government. Everybody wins…except for taxpayers and the global economy.

Per dollar spent, OECD subsidies may be the most destructively wasteful part of the federal budget. And that says a lot.

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In an amusing coincidence, Secretary of State Hillary Clinton and I were both in Latin America this week offering fiscal policy advice. But it won’t surprise you to know that Mrs. Clinton’s suggestions are radically different than the advice I provided. She spoke in Ecuador and, according to an AFP report, said it was time for “the wealthy across the Americas to pay their ‘fair share’ of taxes in order to eliminate poverty and promote economic opportunity for all.” She also claimed that “her appeal to overhaul tax systems did not amount to ‘class warfare’ and was instead a recognition that the ‘winner-take-all-approach’ was a drag on progress.” The AFP story concludes with Mrs. Clinton asserting, “We can’t mince words about this. Levels of tax evasion are unacceptably high,”

By contrast, in my remarks to the Fundacion Libertad in Panama and in my speech to the Chamber of Commerce in El Salvador, I explained that academic research shows that better tax compliance is best achieved by lowering tax rates and eliminating inefficient and corrupt spending programs so that taxpayers have more confidence that their money is not being wasted. But let’s touch on something even more important than economics. I also made a moral argument about the danger of giving national tax authorities too much power and information – especially in a region where governments oftentimes are the source of oppression, expropriation, and tyranny. Simply stated, there are some things that are more important than obeying tax laws. This Center for Freedom and Prosperity video explains that so-called tax havens are an extremely important refuge for people who are subject to persecution and other forms of government malfeasance.

Let’s consider some Latin American examples. Imagine a political dissident in Venezuela. Hugo Chavez has turned that country into a thugocracy and opponents of his sinister regime are vulnerable to having their assets expropriated (and worse). Thankfully, many Venezuelans are able to protect themselves from socialist tyranny by putting their money in Cayman, Panama, or Miami (the U.S. is a tax haven for non-U.S. people). But if Mrs. Clinton got to make the rules, tax havens would no longer exist and Chavez would be empowered.

Or what about families in Mexico, who rightfully are afraid that if they keep their money in the country and report it on their tax returns, corrupt bureaucrats in the national tax office will sell their names to criminal gangs and suddenly their children will be kidnapped and they will have to deal with the horror of getting a ransom note accompanied by a child’s finger. Fortunately, many Mexicans can guard against this horrific possibility by placing their assets in Cayman, Panama, or Miami. But in Mrs. Clinton’s ideal world, those options would not exist and many more people would experience the nightmare of vicious crime.

And consider the plight of Argentinians. A few years ago, the nation’s venal government stole the private pension assets of the people. This is in addition to radical currency devaluations that have wiped out a big chunk of people’s savings. Prudent Argentinians have avoided these forms of back-door thievery by moving funds to Cayman, Panama, and Miami. In the Orwellian world envisioned by Mrs. Clinton, however, tax havens wouldn’t exist and governments would have carte blanche to engage in bad policy.

This is not the first indication of Mrs. Clinton’s government-über-alles mindset as Secretary of State. Let’s remember that she urged class-warfare tax policy for Pakistan and more recently said Brazil was a role model for soak-the-rich tax policy (a strange assertion since the top tax rate there is only 27.5 percent). If nothing else, at least we can give her credit for being consistent.

But if I have to choose between Mrs. Clinton’s consistent statism and protecting the liberty and freedom of oppressed and persecuted people, it’s no contest. Politicians and senior government appointees all over the world act as if folks in the private sector are nothing more than serfs and peasants who have an obligation to pay ever-higher tax burdens, so we should be happy that so-called tax havens offer a refuge – even if we don’t live in failed states such as Venezuela, Mexico, and Argentina. Actually, since Obama is trying to turn us into Greece, maybe this issue will be important for Americans even sooner than we think.

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