Mario Waissbluth, a blogger for La Tercera newspaper, recently wrote about the gap in incomes between rich and poor Chileans, and advocates an increase in corporation and other taxes to narrow the gap. There is great inequality in Chile, but his call for tax increases on rich people is wrong for numerous reasons such as his failure to identify the causes of income inequality. Nathan Lustig, co-founder of Entrustet, describing the potential of the Amazon Kindle in South America, more constructively suggests that Chile stop imposing punishing taxes on people buying educational products such as books and consumer electronics such as the Amazon Kindle and personal computers.
Waissbluth mistakenly believes that increasing corporate income taxes redistributes income even though corporations consider taxes a normal business expense and pass it along to their customers. In other words, corporations collect taxes for the government, but do not pay taxes. Investors make decisions based on the prospect of profits calculated after taxes and other expenses are paid.
Waissbluth also notes that government spending in Chile is much lower than in other rich countries and advocates bigger government and using it to redistribute income. He believes that behind every great fortune lies a great crime, a discredited theory I discussed in an earlier post. A good government does not to steal money from any group, even rich people, for the benefit of others; instead, it enriches every citizen with every law. Legislators should focus on repealing unjust laws rather creating new injustices. Otherwise, every citizen tries to live at the expense of everyone else.
Chile is one of the few rich countries with a booming economy; most are suffering under the weight of the enormous debts and should not be imitated. Waissbluth points out that Chilean government is more efficient than the United States, Germany, Japan, Israel, Britain, and South Korea; but fails to note that small government is more efficient than large. Chile would become more corrupt if government spending were increased.
Chile should aspire to be the Hong Kong economy of South America; Hong Kong was a poor country 50 years ago that has become rich and is the country with the most freedoms. Singapore is a model economy that attracted investor Jim Rogers to emigrate from New York, although it restricts the press and curtails other freedoms (chewing gum is outlawed!). Government consumes 19% of the economy in the three countries and each has grown much faster during the last 5 years than the United States, Japan, and Germany. These governments may seem small to Mario Waissbluth and other Marxists, but is enormous compared to the United States government of 1929 that consumed 4% of the economy and was the richest country in the world.