Hillary Clinton says USA doesn't want to keep giving aid to regimes that won't tax their country's elite and singles out Pakistan

Somehow this item, reported first by AP on September 28, got by me until I read the Herald Tribune's Express September 30 discussion of the report. I guess I was too busy at the time following news about the carnage in Mexico and the attack on a NATO convoy in Pakistan to notice:

US Secretary of State Hillary Clinton on Tuesday said that Pakistan must tax its elite if it wants to continue receiving financial assistance, the Associated Press (AP) reported.

“This is one of my pet peeves: Countries that will not tax their elite who expect us to come in and help them serve their people are just not going to get the kind of help from us that historically they may have,” Clinton told an audience at the US Global Leadership Coalition conference. ...

Let me interrupt to express the hope that Secretary Clinton gives the same warning to Mexico's President Felipe Calderón. I do have a dollop of good news to report on that front, which I'll save for the next post on Mexico.

I am going to be frank here. If Obama's administration consistently backs up its words about tying aid to a government's tax base and collection of fair taxes, then despite my hatred for the man and his regime I would support his reelection bid, if he runs again, unless his opponent wrote it in blood that he'd continue the policy if elected to office.

That's how important the issue is. For more than a generation the United States of America has been supporting unspeakable evil because of its habit of handing out aid to regimes that will not collect taxes from the people that put them in power.

All the while, the American working poor and middle class knock themselves out to pay their taxes -- the very taxes that allow the U.S. government to help fiends in other countries escape paying a fair tax. Not to mention how the practice perverts the concept of charity, or how much it's boomeranged on Americans.

And all this is on top of the theft of aid and development loan money carried out by recipient regimes, while development banks and international aid organizations rationalize the theft by saying it's part of the markup for helping the world's poorest.

As to whether the Obama regime will stick to its guns -- to continue with the Tribune Express article:

“Pakistan cannot have a tax rate of 9 per cent of GDP when land owners and all the other elites do not pay anything or pay so little it’s laughable. And then when there’s a problem everybody expects the US and others to come in and help,” Clinton said. She noted that Pakistan’s finance minister is now presenting a package of economic and tax reforms.

Treasury Secretary Timothy Geithner said the higher bar for US aid will help the US get more for its money.

“Unless we are tougher on how we provide assistance, we should not be financing them at this level,” Geithner said.

Pakistan receives $1.5 billion annually in non-military assistance and has become one of the principal recipients of US aid. The money funds traditional development projects such as schools and clinics but is also meant to strengthen a weak government in a country vital to the US-led war in Afghanistan and its broader struggle against extremists.

Elite hamper broadening of tax net?

Finance Minister Abdul Hafeez Sheikh had previously accused the elite class of hampering the broadening of tax net, adding that they were resisting the imposition of the much-needed flood tax. Addressing members of the Senate, the finance minister said that although the economic situation was challenging, it was not as precarious as being portrayed by some segments.

I'm happy to report that Hillary's rant scored big with Pakistan's Daily Times, which elaborated on the tax situation in Pakistan:

... It is true that a large proportion of the burden of taxes is shared by the middle and lower classes of Pakistan. In times of crisis, they are the ones who bear the brunt of the ensuing inflation and economic adversity.

For instance, agricultural income, which accounts for almost 23 percent of the GDP, is not taxed in Pakistan, excluding the large landholders from the tax net. The rich, with their economic surplus, thus carry on with their lives merrily.

A similar line has been taken by the British High Commissioner to Pakistan Adam Thomson, who criticised Pakistan’s members of parliament for their lack of response to the crisis and for not paying taxes. This indicates the dominant thinking among donor countries that Pakistan should generate funds from its own untapped resources. The world is going through a recession and expecting taxpayers of other countries to dig deep into their pockets to help Pakistan’s flood affectees while doing nothing ourselves is a little too much for even the richest countries.

Incidentally, the rich and influential also plunder the national wealth by getting loans written off from various banks through their political or social clout. The Supreme Court’s hearing of the loans write off case has highlighted the deep web of connivance of the State Bank of Pakistan (SBP), government officials and influential borrowers, who take hefty loans simply to get them waived off later. It is time the new governor of SBP looked into this scam and introduced transparency into the working of the bank.

Before we remonstrate the rich nations for not helping us enough, Pakistan’s rich will have to contribute by paying a proportion of their wealth for the uplift of the flood affectees. Fortunately, the finance minister turned down the proposal to impose a 10 percent surcharge on income tax, which would have over-burdened the middle class salaried people, who would be affected even otherwise due to a rise in inflation.

The need is to tax those who evade taxes and have failed to come forward to help deal with this catastrophe. The president’s statement that the government will impose a one-time flood tax on the rich is thus a welcome move.

To offset the adverse impact of inflation and reduce the fiscal deficit, the SBP has raised its policy rate 50 basis points to 13.5 percent. This is the second revision of the base rate in the past two months and has contributed little to macroeconomic stability or containing inflation.

The government’s cutting down of its expenditures drastically may give the SBP some space to divert the treasury resources where they are required most and not resort to cosmetic monetary measures. Spending beyond its resources and meeting the deficit through borrowing from the SBP was not justified in ordinary circumstances; it is criminal at a time when the country’s economy is feared to be crumbling. Both the government and the rich will have to take their share of the burden to bail the country out of the economic quagmire it will likely end up in during the coming months.

Well said; however, along with prodding the elite in developing countries to pay taxes, official Washington's culture must undergo a sea change. For a time I was keeping a list of all the policy 'experts' who were urging that Washington increase its aid to Pakistan; the list got so long I finally threw it away in disgust.