The Mexican presidential race may seem a borderline topic for this blog, which ordinarily deals with U.S. tax legislation and policy. It is worth considering, however, in light of what we can learn about the impact on a country of governance by a wealthy elite, increasing evidence of tax evasion by professionals, and poverty for the majority of the country's citizens.
The New York Times ran a story today by James C. McKinley Jr, In Race for Mexico's Presidency, Populist Tilts at a Privileged Elite, about the populist campaign of Andres Manuel Lopez Obrador, a candidate who takes commercial flights, changes in dirty bathrooms before rallies, and knows where of he speaks when he addresses the fact that "politicians, business owners and their families have gotten rich and evaded taxes while the working class has remained mired in poverty."
Mexico is a country in which half of its citizens live below the poverty line and a mere 10 percent of the elite hold at least 45% of the wealth. (As the Times story notes, the wealthy do not readily respond to government surveys, so the figure may in fact be considerably higher.) Tax evasion by the wealthy is "rampant", with 40% of businesses and 70% of professionals and small business owners cheating. The poor, however, pay their taxes--a 15% sales tax on every durable good purchased. Mexico also has very high salaries for government bureaucrats who make more than their counterparts in the US while apparently running Abramoff-like sweetheart deals for government contracts (think of FEMA's arrangements for unused trailers and the Defense Department's sweetheart deals for Halliburton in Iraq, where even acknowledged charges for meals not provided are paid by the government). The wealthy reaped enormous profits out of privatization--look at Carlos Slim Helu, the wealthiest man in Latin America (and the fourth wealthiest in the world) and head of a family oligarchy that controls communications and other companies throughout the region. See Forbes, here, and another summary, here.
Obrador's background is described in this entry in Wikipedia. As mayor of Mexico City, Obrador balanced the budget--improving tax collection by 44% and cutting 500 government jobs from the swollen bureaucracy--and used government funding to help the poor. New York Times, supra. Obrador wants to similarly change the way the Mexican federal government serves the wealthy few with privileges that "impoverish people and affect the country's development." Obrador believes that the country's oil wealth can be used to industrialize and help defeat pervasive poverty.
Obrador's opponent, Felipe Calderon, a conservative from current President Fox's National Action Party who has a degree from the Kennedy School of Government, see this Wikipedia entry, proposes staying the course of free trade and cutting income taxes for the rich and businesses by enacting a flat rate. New York Times, supra. Calderon doesn't like Obrador's social agenda, implying that he is a radical revolutionary. Calderon's chosen path--lowering taxes on the wealthy even in the midst of considerable tax evasion-- is not dissimilar from the regressive tax situation that many "reformers" are urging on the US--a policy that would permit wealthy families to owe no tax on their capital gain income or income from corporations but would require everybody to pay a steep sales tax on items purchased.
It is interesting that a person like Obrador is considered "dangerous" merely because he has an extraordinary ability to communicate with the poor and to understand that no country can function well with a small population of wealthy elites who siphon off funds from the government through tax evasion and corrupt deals while a majority of the population festers in poverty. That is not the situation in the United States, thankfully, but tax policies that favor creation of wealth at the expense of social programs to improve the living of ordinary Americans could eventually lead us there. Mexico's situation is a cautionary tale for those who believe that capital should go untaxed in order to spur investment.
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