War and drought are the standard explanations for
War and drought definitely take their toll. But so do
Jude Wanniski has taken a look at taxation in
Ethiopia. This is what he found. [Fall
SSU Lesson #9 Taxes in Africa II, Wanniski.com,
October 31, 2003]
A farmer who earns $68 a year after expenses from
cash sales of a crop is taxed 10%. Once a farm`s annual
income passes the $4,235 mark, additional income is
taxed at 89%. Wanniski wonders if such a tax system
wouldn`t cause Ethiopians to starve in the absence of
war and drought.
Desperate for tax revenues, the Ethiopian government
is blind to the incentive effects. Wanniski reports that
there is a 150% excise tax on beer, 80% on soft drinks,
75% on tobacco, 100% on fuel, and so on. In addition,
there is a 15% value added tax. With such gargantuan
sales taxes, a poor country`s commerce is snuffed out.
Examining Ethiopian income taxes, Wanniski found that
the rates apply to monthly salaries. Consequently, an
Ethiopian is taxed even if he is out of work for most of
the year and his average monthly income is below the
threshold. Moreover, there are no personal deductions.
Gross income is taxable income.
These tax rates on
67 million Ethiopians produce $1 billion in annual
revenues, of which $125 million services Ethiopia`s
debts to the IMF and other foreign lenders.
Many things are wrong with this picture. Ethiopia is
in the revenue-minimizing range of the Laffer curve.
Even the IMF must know this. The IMF is supposed to
advise debtors about economic policy. In Ethiopia, as
elsewhere, the IMF has failed.
In Zimbabwe, a 45% tax rate strikes enterprise dead
when annual incomes reach about $500 with a 30% surtax
on top of the 45% (see www.wanniski.com).
A person might think that the Congressional Black
Caucus would lead the charge for more realistic
taxation. Alas, addicted to handout politics at home,
Black Caucus agitates for more
foreign aid to Africa—which means more government
funds for warring factions to fight over.
Africa is dying, because Western policymakers are
still carrying on their war against Reaganomics.
Stagflation—rising inflation and
unemployment—offered control-minded policymakers the
chance to tighten their grip on economies by
regulating prices and incomes in order to combat
stagflation. But along came President Reagan, who used
supply-side economics to reverse the policy mix and
to cure stagflation.
escaped from the clutches of the control-minded, an
offense for which Reagan is not forgiven.
Many Western policymakers place greater value on a
more equal distribution of income than they place on
economic growth. For them,
high tax rates are a desirable tool. They are
willing to sacrifice greater income and tax revenue
growth in order to narrow income differences.
controversial CBS program on Reagan was a
propaganda attack designed to destroy Reagan`s
success in order to restore belief in government
solutions. Neoconservatives, with their goal of
American Empire, are helping the leftwing to revive
“big government religion.”
In this atmosphere Africans are likely to be
sacrificed. Giving Ethiopians a Reaganite policy
prescription would conflict with the desire to extirpate
If tax policy allowed Africans to make money, there
would be less incentive for Africans to fight over who
controls the government in order to pocket the revenues.
Wars would diminish as alternative sources of wealth
arose, making it less of a life and death matter to have
control of the government.
Westerners, however, believe that sending food aid is
a surer display of compassion than exporting Reagan`s
tax policies. The food aid, of course, subsidizes war.
The recipient government uses the aid to feed its
supporters, while allowing its opponents to starve.
The compassionate Western donors will be complicit in
an act of genocide.
But Western policymakers will be saved the
pangs of bad conscience by their refusal to
recommend Reagan policies “that benefit the rich.”
Paul Craig Roberts is the author with Lawrence M.
The Tyranny of Good Intentions : How Prosecutors and
Bureaucrats Are Trampling the Constitution in the Name
of Justice. Click
here for Peter Brimelow`s
Forbes Magazine interview with Roberts about the
recent epidemic of prosecutorial misconduct.