Call for higher taxes is misguided

03 July 2019
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A small group of naïve billionaires in the United States are lining up begging for higher taxes on the super rich. I say naïve because they itemise a whole list of problems they imagine can be solved with this additional tax. The whole thing reminds me of the history of foreign aid in Africa. Allow me to explain. The billionaires are brilliant dreamers who have a litany of problems that can be solved with money. They argue it could fuel economic investment, pay for health care, and reduce inequality. In other words, it will do all the miraculous things foreign aid was going to do for Africa.

Now, the U.S. government already confiscates trillions of dollars in taxes and yet all the problems politicians said they were going to solve remain firmly in place. What is the American central government spending those trillions on? They fund internment camps for refugees fleeing violence in Central America—violence directly linked to America’s war on drugs.

A huge percentage of American taxes fund wars and military expansionism. It pays for drones that bomb civilian targets in the so-called war on terror. It pays for police agencies to come up with new methods of keeping Americans under surveillance. It’s used to subsidise multi-billion dollar corporations. It funds the Federal Drug Administration which acts to cartelise pharmaceuticals and dramatically drive up prices to more than what they would be in a free market.

This is how politicians spend the money; the dream solutions used to justify the taxes are rarely implemented beyond some token spending.

Robert Mugabe’s regime in Zimbabwe joined the queue for foreign aid and provided all sorts of platitudes about helping the poor. In practice it afforded Mugabe luxury trips to England for shopping sprees at Harrods.

When his own people demonstrated against the corruption, he used foreign aid to fund police crackdowns on his opponents. At one point, they used vehicles provided by the British government when arresting demonstrators amongst whom was a cousin of Queen Elizabeth II. Asger Pilegaard, then head of the EU delegation in Zimbabwe, admitted, “The humanitarian aid financed by European taxpayers is not being received by the people for whom it was originally intended”.

Foreign aid helped Zaire’s Mobutu to accumulate a fortune of $10 billion. Aid given to Somalia warlord Siad Barre was used to buy arms. Mengistu in Ethiopia used donor funds to force opponents off their land and one official in his government bragged, “It is our duty to move the peasants if they are too stupid to move by themselves”.

Even in South Africa, aid to help fund the war on AIDS was diverted to fund an inaccurate play on HIV, Sarafina II. The play was hardly seen by anyone, yet it consumed 20% of the AIDS budget for that year. What it did buy was a luxury bus for the producer to use, but it did little to reduce HIV infections.

An Ethiopian bureaucrat showed nothing but contempt for the people. He said he had to order them around because they are too stupid to run their own lives. That’s the problem with these attempts to solve problems via political means. The incentives of the politicians are woefully out of line with the incentives needed to solve these problems.

These American billionaires could easily fund health care without the need for any law to be passed. If they want to give 3% of their capital to a hospital, no one is stopping them. St. Jude Children’s Research Hospital gives free health care to all. Patients and their families are never charged. It’s funded by donations.

Surely these billionaires could go to the people who operate St. Jude’s and offer them an endowment to open several more hospitals. The money would then actually fund health care and you can be assured it wouldn’t be used to fund drone strikes.

If they want to increase access to higher education, they could do what Berea College in Kentucky has done. Berea set up an endowment fund which is now worth $1.2 billion. The interest on the fund provides free tuition for every student at Berea.

If you want to create jobs, make it easier for employers to hire new workers and expand. If you want to see improved living conditions for people, give them ownership of their government housing.

The real solution is to trust the people. Bottom-up solutions work much better than top-down bureaucratic ones that are often riddled with corruption and waste. South Africa throws billions of rands at failed state-owned enterprises which, every year, come back asking for more. The approach of political management doesn’t work.

These American billionaires should seek out those worthy charities doing good work and direct their hundreds of millions in their direction. Turning the funding they are willing to provide over to politicians to manage means it will be used in ways directly contrary to the lofty desires they express in their calls for higher taxes.

James Peron is the president of the Moorfield Storey Institute and author of several books including Exploding Population Myths and The Liberal Tide. The views expressed in this article are those of the author and not necessarily those of the Free Market Foundation.

 

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