Mexican president proposes world tax to aid poor nations of Third World

By DAVID MOON, Moon Capital Management
March 31, 2002

A couple of weeks ago, Mexican President Vicente Fox penned an editorial in the Washington Post calling for a new, never before assessed world tax. That's right: world tax. The tax would be collected by the United Nations or a similar international agency and the proceeds would be used to fight poverty around the world and finance "global public goods."

Despite the billions of dollars U.S. citizens already spend in foreign aid, the world tax proponents argue that U.S. citizens pay a much smaller percentage of our GDP for basic necessities and government services than do citizens in less developed countries. Why shouldn't we help other countries' citizens if we already enjoy such success and excess? We have a larger percentage of our income available for trivial pursuits, like cruise vacations and SUVs. It is not enough that the United States already foots more of the planet's foreign aid bill than any other country. According to some, we are not paying our fair share. There are needs to be met and the only people who can meet those needs are those with those with the greatest resources.

It is not just the Mexican president supporting this world tax. With the help of Great Britain and Germany, President Fox attempted to get the International Conference on Financing for Development to adopt the notion into a declaration last week. The measure was defeated, in part because of immediate protests from the United States and Japan. Former United Nations Secretary General Boutros Boutros-Ghali proposed a similar tax in 1996. The reactions and outcome were similar. In fact, then-senator Bob Bob-Dole proposed a bill requiring the United States to withdraw from the United Nations if the UN ever discussed such a tax. Dole's bill had both democrat and republican supporters.

The United States currently provides more than $10 billion a year in direct foreign aid, not counting cash contributions to the World Bank and United Nations. President Bush has promised an additional $5 billion. But the poorer countries need still more, as decades and hundreds of billions of dollars in foreign aid have done little to improve the collective plight of the world's poorest citizens.

How does the possibility of a world tax make you feel? What if you are one of the world's wealthiest, living in a million-dollar house and spending your days collecting bond interest? You say that's not you? You live in a modest house and need two salaries to earn $75,000 a year? Do you think of taxing the wealthy as a tax on "those other people?" Not so in a global sense. The middle class in the US are wealthy compared to the entire world population. Even the poorest fifth of our citizens enjoy a better standing of living than most people in Third World countries. What is the point? One option is for a world tax to be collected from the same five percent of the U.S. citizens that already supplies 50 percent of the U.S. federal government revenues. The only problem with this solution is that there aren't enough of them to support the entire world. The tax would have to be borne by the "world's wealthy," which includes the U.S. middle class and, to some extent, lower class.

Now that sounds preposterous. Tax those who are already struggling to pay the expenses of those who have even less? How much can you take from us before we just refuse to pay? Is $10 billion a year enough? It hasn't permanently solved any problems, yet. What makes us think $15 billion might do the trick?

There are likely some lessons to be learned from this world tax proposal about federal and state taxation.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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