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Of Taxation, Prosperity, And Bono


The singer and political activist Bono recently caused a stir when word got out that his California-based venture capital firm, Elevation Partners, invested around $300 million in Forbes magazine, and, more significantly, that his band’s company, U2 Unlimited, which holds the rights to U2′s master tapes, moved to the Netherlands to pay a lower corporate tax rate.

“Having listened to Bono on the necessity for the Irish government to give more money to Ireland AidI am surprised that U2 are not prepared to contribute to the exchequer on a fair basis along with the bulk of Irish taxpayers,” said the Labor Party’s finance spokesperson, Joan Burton, as quoted in The Mail & Guardian Online.

This, indeed, is somewhat ironic, as it involves a person – an influential celebrity – who seems to have no problem encouraging governments to expropriate their citizenry’s income, earmark it for foreign aid and loans, and then, if a recipient-government irresponsibly squanders the money, to forgive the debt.

The rationale for aid, however, whether in the form of gifts or loans, loses steam when it is realized that (a) government-to-government aid has overall been a dismal failure, and that (b) too many citizens of the “richer,” donor country are still without jobs, unable to purchase homes, cannot supply their families with adequate medical coverage, need to borrow money to give their children a higher education, and are faced with a huge tax burden to keep their local, state, and federal bureaucrats employed.

The problem of foreign aid is nicely summed up by one of the greatest political economists of the twentieth century, Henry Hazlitt, in his Man vs. the Welfare State: “[F]oreign aid retards the economic growth and capital development of the country that grants it. If it is fully paid for out of taxes at the time it is granted, it puts an additional tax burden on industry and reduces incentives at the same time that it takes funds that would otherwise have gone into new domestic investment. If it is not fully paid for, but financed out of budget deficits, it brings all the evils of inflation. It leads to rising prices and costs.”

That, of course, is from the grantor’s perspective. As for the humanitarian argument that foreign aid will “enable the poor nations to conquer their poverty, which they cannot do without our help,” Hazlitt responds to that as well, and I encourage anyone to pick up his book and read.

Based on U2 Unlimited’s move to the Netherlands, it appears Bono, at least on a personal level, is quite cognizant of the dangers of excessive taxation – though it is doubtful he would agree that monies used for foreign aid are excessive. Most people recognize the legitimacy of taxation – at least on minimalist terms, for defense, protection, and essential public works. And Meir Tamari, in his “With All Your Possessions”: Jewish Ethics and Economic Life, describes the principles behind and the enforcement of taxation in a self-sufficient Jewish society.

But it can’t be denied that our sages were quite cynical about both taxation and tax collectors. For example, in Bava Kamma (Mishna 10:1), it states, “Do not make change from the tax collector’s box, nor from the property and poll tax bag, and do not take charity from them.” Why not? Ovadiah of Bartenura says because this money is considered stolen. Of course, this may reflect the practice of the time of collectors taking much more than they were entitled to than to deny an actual need for a public budget. Yet, the message, in an age where money is collected for far more than essential public services, is clear. Once the mechanism for taxation is set in motion, it tends to mushroom out of control, often overwhelming the unsuspecting taxpayer. If the reader has any doubts about this, ask any homeowner in New Jersey about his or her property taxes, and be prepared for an earful.

Interestingly, Ireland’s economic growth in the late 1990′s and early twenty-first century, which turned it into one of the wealthiest countries in the European Union, was termed “The Irish Miracle” by Karl Sigfrid in an article he wrote for The Freeman (April 2004). Sigfrid attributed this “miracle” to the reduction of the public sector (which allowed for growth in the private sector), reducing the rate of corporate taxation to 12.5 percent, tax cuts for the working person, and Ireland’s openness to foreign investment and trade.

About the Author: Michael Paley, a young and talented writer with an eclectic range of interests, died tragically in December 2006.


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