Argentina adds 15% Tax on all Out of Country Credit Purchases

Posted by PITHOCRATES - September 2nd, 2012

Week in Review

Argentina has a problem.  They have depreciated their currency so much that no one wants to hold on to it.  And they are taking aggressive measures to that end (see Argentine tax agents to track all credit card buys by MICHAEL WARREN, Associated Press, posted 8/31/2012 on Yahoo! News).

Argentina just made it more expensive for its people to use credit cards outside the country, and more dangerous for cardholders who aren’t paying all the taxes they should.

One measure published in Friday’s official bulletin adds a 15 percent tax every time people make a purchase outside the country using a card issued by an Argentine bank. Another requires the banks to report every credit card purchase, home or abroad, to the tax agency.

The moves target Argentines who have discovered that by using credit cards outside the country, they can get around increasingly tight currency controls and shelter their money from soaring inflation. Purchases outside Argentina using peso-denominated cards soared 48 percent in June compared to the year before, obligating the central bank to send $289 million out of the country in just one month. Overall capital flight soared to $23 billion in 2011.

Argentina likes to print money.  Which means Argentine pesos don’t hold their value.  If you don’t spend them this week they will buy less next week.  So Argentines don’t want to hold on to them for long.  They’d rather buy stuff while the buying is good (before their pesos loose too much of their purchasing power).  Or quickly exchange their pesos for a currency that holds its value longer.  Like U.S. dollars.  And out of country credit purchases help Argentines minimize the effects of runaway inflation on their earnings.   But when Argentine banks have to settle these international accounts it takes a lot of a depreciated currency to do that.  Hence the soaring capital flight.

If printing so much money causes so many problems why do they print so much money?  Because Argentina governments like to use class warfare.  They like to tax the rich.  And give to the poor.  As well as pay for a lot of big government projects to employ highly compensated union workers.  All to help their shirtless.  Their descamisados.  The poor laborers who work so hard that they must remove their shirts.  But they have so little because of the evil rich people running companies.  And their foreign investors.  So the Argentines gear their whole economic system to favor the unions. And the descamisados.

Argentines don’t have to declare their income unless they are salaried and make more than $20,000 a year or are self-employed and make more than $30,000, so many register with the tax authorities as if they make less than the limit, dealing in cash and trying to keep their income and purchases off the books.

But Argentina also taxes accumulated wealth, giving the government license to scrutinize people’s private property to an extent that foreigners are ill-accustomed to. People whose incomes don’t match their lifestyles can find themselves closed out of the financial system until they come clean.

Since November 2011, Argentina’s government has sought to stem capital flight by closing down nearly every avenue people have to legally trade their inflationary pesos for U.S. dollars. The black-market peso price has spiked as a result, trading now at 6.37 pesos to the dollar, compared to the official rate of 4.65. That 37 percent gap represents what people with undeclared pesos have to lose in order to convert their cash to dollars inside Argentina.

Credit cards, meanwhile, are paid at the official rate, and many cardholders have figured out ways to use them to avoid this loss. The 15 percent tax raises the effective cost of purchases to 5.35, reducing the gap by nearly half.

Of course if you try to implement massive transfers of wealth those with wealth will do everything within their power to keep what is theirs.  So the government has to do everything within their power to let as few as possible to escape their wealth-destroying policies.  Hence the clampdown on out of country credit card purchases.  While the government clamps down it’s the simple workers who ultimate suffer.  The descamisados.  For it is their savings that are made worthless over time.  Making their retirement more difficult.  And less enjoyable.

Argentina has pursued the same polices since Juan Peron in the Forties and Fifties.  And little has changed over time.  Other than a great debt default.  Meanwhile their neighbor, Chile, is doing quite well.  Thanks to a different set of economic policies implemented by a dictator.  Who had help from a great economist.  Milton Friedman.  Who worked with the brilliant Chilean economists known as the Chicago Boys.  Who did things very un-Argentina-like.  And how did that work out for their retirees?  Suffice it to say their pension plan is a better model than the U.S. Social Security program.

Argentina is a great country.  Filled with people just waiting to exploit their human capital.  And the only thing in their way are the bad policies of their government.  Which must be so frustrating for Argentineans.  Because they could explode their economy if only they were allowed to.  And the only thing preventing them are the class warfare policies of their government.  As the class warfare polices of so many previous governments have denied previous generations lives of comfort and plenty.  Lives that were just out of reach.  Of the middle class.  And the descamisados.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , ,

Comments are closed.

Blog Home