Acting as the Typhoid Mary of the Global Economy, the OECD Urges Higher Taxes in 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 U.S.-taxpayer-funded organization has become infamous for reflexively advocating big government.
- The OECD has an anti-tax competition project designed to prop up Europe’s bankrupt welfare states.
- The OECD is pushing a “Multilateral Convention” that is designed to become something akin to a World Tax Organization, with the power to persecute nations with free-market tax policy.
- The OECD has endorsed Obama’s class-warfare agenda, publishing documents endorsing “higher marginal tax rates” so that the so-called rich “contribute their fair share.”
- The OECD pulled off a hat trick of bad policy in a 2010 document, promoting a value-added tax, Obama’s global warming agenda, and failed Keynesian stimulus.
- The OECD endorsed Obamacare, as I explain in this video.
- The OECD even advocates higher taxes when nations are in the middle of economic crisis.
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?
Reefer Madness Here and Abroad
In the New York Times, Ethan Nadelmann takes aim at the “reefer madness” of the Obama administration, which despite promises and expectations has stepped up the war on marijuana:
But over the past year, federal authorities appear to have done everything in their power to undermine state and local regulation of medical marijuana and to create uncertainty, fear and confusion among those in the industry. The president needs to reassert himself to ensure that his original policy is implemented.
The Treasury Department has forced banks to close accounts of medical marijuana businesses operating legally under state law. The Internal Revenue Service has required dispensary owners to pay punitive taxes required of no other businesses. The Bureau of Alcohol, Tobacco, Firearms and Explosives recently ruled that state-sanctioned medical marijuana patients can not purchase firearms.
United States attorneys have also sent letters to local officials, coinciding with the adoption or implementation of state medical marijuana regulatory legislation, stressing their authority to prosecute all marijuana offenses. Prosecutors have threatened to seize the property of landlords and put them behind bars for renting to marijuana dispensaries. The United States attorney in San Diego, Laura E. Duffy, has promised to start targeting media outlets that run dispensaries’ ads.
President Obama has not publicly announced a shift in his views on medical marijuana, but his administration seems to be declaring one by fiat.
As bad as the drug war is in the United States, it’s wreaking far more havoc in Mexico and Latin America. That’s why the Cato Institute is holding an all-day conference next week, “Ending the War on Drugs,” featuring:
- the former president of Brazil
- the former drug czar of India
- the former foreign minister of Mexico
- the author of Cato’s study on decriminalization in Portugal
- the Speaker of the House in Uruguay
- plus video presentations by former Secretary of State George Shultz and former Mexican President Vicente Fox.
Check it out. And be there November 15.
Rafael Correa’s Flat in Belgium
It is traditional for a Latin American nationalist to criticize people who take their money out of their country and invest it somewhere else. President Rafael Correa has done it several times. In 2009 he forced private banks to repatriate part of their assets.
What is unusual is finding evidence that he who preaches does not necessarily practice what he preaches. Last week, Ecuadorians were surprised to hear the news—with our tax authority (Servicio de Rentas Internas–SRI) and then the presidency as a source—that Correa had transferred $330,000 to his bank account in Germany. The President then clarified (“…don’t be stupid, the money was sent to Belgium not Germany”) [in Spanish] that the money was transferred to pay for an apartment for his family in Belgium, given that his children may pursue studies in that country.
But the story did not end there. Earlier this week, the director of the SRI, Carlos Marx Carrasco, announced [in Spanish] that he will publish a list of all citizens that have taken money out of the country with the amount they have paid in taxes for doing so (currently there is a 2% tax on all transactions that imply taking money out of Ecuador). Marx Carrasco said that this has to be done “so that the citizens can see (the behavior) of those who represent El Universo, Diario Hoy, El Comercio and all media, who with human misery have allowed themselves to question (what the president has done)”.
This is how, those who concentrate political power in Ecuador, use information collected for the purpose of charging taxes to take reprisals.
Obama’s Latin America Trip
President Obama’s trip to Latin America is likely to focus on economic topics, but two security issues deserve scrutiny during his stops in Brazil and El Salvador.
Washington’s diplomatic relationship with Brazil has become somewhat frosty, especially over the past year. U.S. leaders did not appreciate Brazil’s joint effort with Turkey to craft a compromise policy toward Iran’s nuclear program. The Obama administration regarded that diplomatic initiative as unhelpful freelancing. And when Brazil joined Turkey in voting against a UN Security Council resolution imposing stronger sanctions on Tehran, the administration’s resentment deepened. Obama should not only try to soothe tensions, he should shift Washington’s policy, express appreciation for Brazil’s innovative efforts to end the impasse on the Iranian nuclear issue, and consider whether the milder approach that the Turkish and Brazilian governments advocate has merit.
In El Salvador, worries about Mexico’s spreading drug-related violence into Central America are likely to come up. El Salvador and other Central American countries are seeking a bigger slice of Washington’s anti-drug aid in the multi-billion-dollar, multiyear Merida Initiative. President Obama should not only resist such blandishments, he should use the visit to announce a policy shift away from a strict prohibitionist strategy that has filled the coffers of the Mexican drug cartels and sowed so much violence in Mexico, and now increasingly in Central America as well. Prohibition didn’t work with alcohol and it’s not working any better with currently illegal drugs.
Brazil’s Drug Czar: Let’s Look at Portugal’s Experience with Decriminalization
In yesterday’s Brazilian daily, O Globo, Pedro Abramovay, the drug czar of the new Brazilian administration, said that Portugal’s experience with drug decriminalization should be considered as an alternative to Brazil’s current anti-narcotics policy. This comes on top of Rio Governor Sergio Cabral’s call for drug legalization and of former President Fernando Henrique Cardoso’s criticism, along with other prominent Latin Americans, of drug prohibition. By officially weighing in on the side of harm reduction, Latin America’s giant can have a significant effect on the debate over this hemisphere’s drug war.
Let’s Open a Wireless Window to Cuba
Three of the world’s largest companies involved in wireless telecommunications—Nokia, AT&T, and Verizon—this week asked the Obama administration to further loosen the U.S. embargo against Cuba. According to a Bloomberg News story this morning:
Nokia, the world’s biggest mobile-phone maker, is urging the U.S. to ease its 47-year-old trade embargo so it can sell handsets to Cuba. AT&T and Verizon, the largest U.S. wireless providers, urged regulators to make it easier for U.S. companies to directly connect calls to and from Cuba.
The almost half-century-old embargo no longer serves any legitimate national security purpose, as I’ve argued before. The remaining restrictions on providing wireless communication services only demonstrate how the embargo actually undermines our stated goal of bringing more freedom to the long-suffering people of Cuba.
To President Obama’s credit, he has done more than most presidents to ease the embargo, including modest steps such as easing travel restrictions for Cuban-Americans and authorizing telecommunications firms to offer limited service in Cuba. In practice, however, President Obama’s efforts have had little effect, and they have not gone far enough.
If the basis of current U.S. policy toward Cuba is democratic empowerment of its people, then removing telecommunications restrictions would be a logical and healthy next step. According to the Bloomberg story, Cuba still has the lowest mobile-phone penetration rate in Latin America. What better way to empower nearly eleven and a half million people than by easing restrictions on their communications with free residents of the democratic United States?
President Obama himself argued in a White House statement in April 2009 that two of the best ways to promote Cuban democratization were by “facilitating greater contact between separated family members in the United States and Cuba” and “increasing the flow of … information to the Cuban people.”
Here is an opportunity to translate those sound words into action.
‘Border Enforcement’ Bill Driven by Election-Year Politics
A $600-million bill to enhance border enforcement has hit a temporary snag in the Senate, but it is almost inevitable, with an election only a few months away, that Congress and the president will spend yet more money trying to enforce our unworkable immigration laws.
“Getting control of the border” is the buzz phrase of the day for politicians in both parties, from Sen. John McCain, R-Ariz., to Sen. Chuck Schumer, D-N.Y. Never mind that apprehensions are down sharply along our Southwest border with Mexico, mostly I suspect because of the lack of robust job creation in the unstimulated Obama economy.
Meanwhile, since the early 1990s, spending on border enforcement has increased more than 700 percent, and the number of agents along the border has increased five-fold, from 3,500 to more than 17.000. (See pages 3-4 of a January 2010 report from the Center for American Progress and the Immigration Policy Center.) Yet the population of illegal immigrants in America tripled during that period. If this were a federal education program, conservatives would rightly accuse the big spenders of merely throwing more money at a problem without result.
To pay for this politically driven expenditure, Congress plans to nearly double fees charged for H1-B and L visas used by foreign high-tech firms to staff their operations in the United States. The increased visa tax will fall especially hard on companies such as the Indian high-tech leaders Wipro, Infosys, and Tata.
This all has the ring of election-year populism. Congress pretends to move us closer to solving the problem of illegal immigrants entering from Latin America by raising barriers to skilled professionals coming to the United States from India and elsewhere to help us maintain our edge in competitive global technology markets.
Argentina Sets an Example of Equality Before the Law for Latin America
Nowadays, it’s hard to find an instance where Argentina sets a positive example for the rest of Latin America. However, last night’s vote in that country’s Senate that legalizes same-sex marriages must be praised as that. Argentina has now become the first country in Latin America to recognize marriage equality for all couples.
The fight for marriage equality is just beginning in Latin America. Outside of Argentina, only Mexico City grants gay couples the right to marriage. Uruguay has granted civil union rights to same-sex couples since 2008, and last year in Colombia the Constitutional Court ruled that same-sex couples can be recognized as de facto unions, which enjoy all the rights of marriage. In December, Costa Rica might hold a referendum on this issue. While the referendum is promoted by opponents of gay civil unions, the vote could end up in a big upset victory for the gay community.
Latin America, with its deep-seated conservative Catholic tradition, is not fertile soil for the cause of gay equality. That is one more reason to applaud last night’s brave vote in Buenos Aires.
A Disappointing Start in Piñera’s Chile
The presidential election in Chile that brought Sebastián Piñera to power last month was good news for Chile and the region. It confirmed once again that Chile is Latin America’s most modern country, one in which Chileans chose a center-right candidate to lead the country after 20 years of center-left governments that by and large stuck to the free-market model set in place in the 1970s and 1980s and that has made the country one of the most economically free in the world. In Chile, what’s at stake in presidential contests is not a radical change of the rules of the game, but rather policies that build on or depend on high growth. Chile’s mature democracy and economy serve as a model for Latin America.
But in just over a month of being in office, Piñera has made two decisions that disappointed his supporters both inside and outside of Chile who believed that he would reinvigorate the Chilean economy and stand firmly against the populist-authoritarian model that Hugo Chávez has exported to the region. Piñera backed the re-election of José Miguel Insulza to head the Organization of American States and has proposed a tax increase on large companies. Insulza and the OAS are widely and correctly viewed as having been silent, incompetent or complicit in the face of repeated violations of basic democratic and civil rights by populist governments in the region. Whatever the domestic political reasons for Piñera’s decision, countless Latin Americans who cherish their rights—not the least of whom are Venezuelans, Hondurans, Bolivians and Ecuadoreans—were disillusioned by the endorsement of Insulza.
On Friday, Piñera proposed to “temporarily” raise taxes on large companies from 17% to 20% (and to increase mining royalties and to permanently increase tobacco taxes) to finance Chile’s post-earthquake reconstruction needs. But a number of Chile’s leading economists are criticizing the tax increase and point to other sources of revenue that would be less damaging to growth. Hernán Büchi, a finance minister in the 1980s, and Luis Larraín, head of Chile’s free-market think tank, Libertad y Desarrollo, have both written op-eds in recent weeks pointing out that one of the country’s main problems has been the steady drop in productivity in recent years. Piñera was elected on a platform to increase productivity. A tax increase would aggravate the problem. According to Büchi, 20 years of center-left governments reduced Chile’s ability to eliminate poverty and followed a path that was politically easy and consistent with their ideology: “It would be a bad omen if the first measures of a government that should represent change in this regard, went down the same path.” Larraín adds that the tax decision will reveal Piñera’s governing approach, in which there is a real danger of avoiding necessary reforms and a president content with simply being a better administrator. We shall see.
A Glance into Costa Rica’s Health Care System
Costa Rica – my home country – has suddenly become part of the health care debate after celebrity radio talk show host, Rush Limbaugh said that he would move to Costa Rica go to Costa Rica for health care if ObamaCare were approved by Congress the federal government gets too involved in health care in the next few years.
Soon after Sunday’s vote in the House of Representatives, a website was set up to buy Limbaugh a one-way, first-class ticket to Costa Rica. Liberals were quick to point out that my country has a socialized health care system that is among the best in Latin America.
People claim that in Costa Rica health care is a right, not a commodity. The problem surfaces when you actually need to exercise your “right.”
Last July, La Nación newspaper carried a report about one hospital that had 5,000 people on a waiting list for surgery, some waiting up to a year. Among those on the list, 900 patients waited months to have possible cancerous tumors extracted. According to the head of the Oncology Department, “We know that 85% to 90% will be cancer cases based on previous medical tests.” For many of these patients, the wait is the equivalent of a death sentence.
Stories like this are common in the Costa Rican press.
Unfortunately, the current nationalized health care system and the state-owned monopoly in health insurance stifle the development of a viable, dynamic private health care system. Thus, many Costa Ricans can’t imagine life without “free” health care. That’s too bad since there’s nothing free about mandatory monthly contributions from workers and nothing just about being forced to pay for deadly delays in health care attention.
The Violation of Human Rights in Venezuela and Cuba
A report (PDF) released today by the Inter-American Commission on Human Rights condemns in well documented form the growing violation of human rights under the regime of Hugo Chavez. The 302-page study is yet another confirmation of the multitude of ways in which individuals, NGOs, union leaders, politicians, activists, businessmen, students, judges, the media and others who disagree with Venezuelan government policies are targeted by the government and its supporters through intimidation, arbitrary use of administrative and criminal law, and sometimes violence and homicide.
Among the many cases it documents, the report describes how the government last year shut down a publicity campaign in defense of private property run by our colleagues at the free-market think tank CEDICE. The government claimed that it did so to safeguard public order and the mental health of the population.
Particularly interesting is that the commission issuing this report (produced in December but for some reason only made public today) is part of the Organization of American States, which has proven itself useless at best and counterproductive at worst, in the face of blatant rights violations by the Venezuelan and other populist Latin American governments in the last decade. Will the same OAS that invited Cuba to rejoin the organization last year now debate the new report or will it and its head, Mr. Insulza, remain silent as they have for so many years?
Meanwhile in Cuba, the country Chavez holds as a model, political prisoner Orlando Zapata Tamayo died yesterday after going on a hunger strike, suffering beatings and having been denied water by prison authorities for 18 days. The mistreatment led to kidney failure. According to Cuba Archive, an NGO that documents deaths attributable to the Cuban regime, Zapata “was then held naked over a powerful air conditioner and developed pneumonia.” What will the Permanent Council of the OAS have to say about that?
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Misguided Fears of Crime Fuel Arizona Immigration Law
Posted by Daniel Griswold
Arizona’s harsh new law against illegal immigration is being justified in part as a measure to combat crime. The murder of an Arizona rancher in March, allegedly by somebody in the country without documentation, galvanized support for the bill.
The death of the rancher was a tragedy, and drug-related violence along the border is a real problem, but it is a smear to blame low-skilled immigrant workers from Latin America for creating a crime problem in Arizona.
The crime rate in Arizona in 2008 was the lowest it has been in four decades. In the past decade, as the number of illegal immigrants in the state grew rapidly, the violent crime rate dropped by 23 percent, the property crime rate by 28 percent. (You can check out the DoJ figures here.)
Census data show that immigrants are actually less likely to commit crimes than their native-born counterparts, as I unpacked a few months ago in an article for Commentary magazine titled, “Higher Immigration, Lower Crime.”
Filed under: General; Trade and Immigration
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