Why Africans starve

War and drought are the standard explanations for starving Africans. War and drought definitely take their toll. But so do tax rates.

Economist Jude Wanniski has taken a look at taxation in Ethiopia. This is what he found.

A farmer who earns $68 a year after expenses from cash sales of a crop is taxed 10 percent. Once a farm's annual income passes the $4,235 mark, additional income is taxed at 89 percent. Mr. 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. Mr. Wanniski reports there is a 150 percent excise tax on beer, 80 percent on soft drinks, 75 percent on tobacco, 100 percent on fuel and so on. In addition, there is a 15 percent value-added tax. With such gargantuan sales taxes, a poor country's commerce is snuffed out.

Examining Ethiopian income taxes, Mr. Wanniski found 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 International Monetary Fund 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 percent tax rate strikes enterprise dead when annual incomes reach about $500, with a 30 percent surtax on top of the 45 percent (see www.wanniski.com).

A person might think the Congressional Black Caucus would lead the charge for more realistic taxation. Alas, addicted to handout politics at home, the Black Caucus agitates for more foreign aid to Africa -- which means more government funds for warring factions to fight over.

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