Realistic taxation should be priority in Haiti restoration
U.S., Canadian and French troops are occupying Haiti and helping establish a new, democratic government. We believe Haitians themselves need to do most of the work of reconstructing democracy and the economy.
But U.S. involvement should have a clear purpose. Immediate remedies include establishing the rule of law and guaranteeing political and other religious liberties. But it’s also not too early to look to long-term economic reforms that will ensure that U.S. troops don’t have to come back again in 2014 as they have in 1994 and 2004.
Here’s just one economic area where swift reform is needed: a tax structure that punishes production and causes massive unemployment. The numbers on tax rates in Haiti have been difficult to come by.
But economist Jude Wanniski obtained numbers that indicate rates that would be punishing even in a wealthy developed country, such as the United States, let alone in the poorest country in the Western Hemisphere, with a per-capita income of just $1,700 a year. Here are the numbers:
• Income tax brackets: 10 percent at an income of $444 per year; 25 percent at $5,555 per year; 30 percent at $16,000 per year. (By contrast, in America the 10 percent rate begins at $10,000 per year, the 27 percent rate at $98,000 and the top U.S. tax rate of 35 percent at $312,000.)
• A 10 percent value-added tax, which taxes the value added to something at each stage of production. The U.S. doesn’t even have this tax, a bad idea from Europe.
• An old-age and disability tax on wages of 6 percent per month on all wages more than $25 per month.
• A business tax of 35 percent on profits more than $16,000.
“These are disgraceful numbers,” Wanniski concludes, “adding up to such an oppressive tax take by the government that enterprise cannot get started, much less survive.”
In addition, the Heritage Foundation’s Index of Economic Freedom — which scores such issues as tax, trade and fiscal policy — gave Haiti a score of 3.78 on a scale of 1 to 5, with 5 being the worst. In addition to the high taxation, Haiti imposes tariffs of up to 20 percent and heavy government regulation. Finally, Heritage noted, “property is not secure in Haiti.”
In recent years, the world has seen consensus on a top income tax rate of no more than 15 percent to rehabilitate impoverished countries. That policy turned Hong Kong into an economic powerhouse, is doing the same for mainland China, is working wonders in Russia and most recently has been applied in Afghanistan by the U.S. occupation authorities.
For Haiti, the goal should be a flat income and business tax of at most 15 percent and beginning, perhaps, at $30,000 of income. They also should get rid of the VAT. And in place of the old-age and disability tax should be a Chile-style retirement investment program.
Haiti can become a healthy country if law and order are restored and people have hope that tomorrow will bring stability and prosperity.