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.

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LESSONS LEARNED #68: ” Beware the demagogue, the champion of the poor, for he has dictatorial aspirations.” -Old Pithy

Posted by PITHOCRATES - June 2nd, 2011

Robespierre used the Sans-culottes

A telltale sign of royalty is a really nice pair of pants.  With a perfect, sharp crease.  But that’s today.  Back in the old days, it was a handsome pair of silk knee-breeches.  The wealthy in pre-revolutionary France all wore them.  I say ‘pre-revolutionary’ because it was not the thing to wear during the revolution.  In fact, a group of people who could not afford these fancy breeches took pride in their plain pants.  The poor working class in the cities.  Artisans and small shopkeepers.  The little guys.  Struggling to make a living.

These people did not wear the ‘culottes’ (French for ‘silk knee-breeches’) of the upper classes.  So they went ‘sans’ them (French for ‘without’).  Hence they were the Sans-culottes.  They were the people without silk knee-britches.  And the mob behind the French Revolution

They were Leftist radicals.  Anti-capitalists.  And the far-Left radical Jacques Roux used them for muscle.  Turned them against the bourgeouis (the middle class).  Caused a whole lot of unrest.  Some food riots.  And a massacre or two.  Roux was becoming too powerful so Maximilien Robespierre, a Jacobin, had him arrested.  Then he used the Sans-culottes to consolidate his power.  With the opportune assassination of Jean-Paul Marat (a Jacobin leader), Robespierre became the leader of the Jacobins and of the Revolution.  For awhile.  With the help of the Sans-culottes, he unleashed the Reign of Terror.  Marat’s assassin was a Girondin.  The Girondins were the political rivals of the Jacobins.  So Robespierre put Marat’s assassination to good use and cleaned house.  And by ‘clean house’ I mean killed as many of his political opposition as possible.  It was the time to kill.  If you didn’t like someone all you had to say was that he or she was a counter revolutionary.  And they got a date with the guillotine.  In all some 16,000 (or more) lost their heads during the Reign of Terror.  Including Robespierre himself.  Live by the guillotine.  Die by the guillotine.  And soon thereafter the Sans-culottes became less of a force as the government pulled back from the extreme Leftist radicalism of the Terror to a more conservative one.

Communist Leaders exploited the Proletariat

Marxism arose as a criticism of capitalism.  Which exploits the working class (according to Marxism).  The proletariat.  Who own nothing but their labor.  And are forced to sell it for day-wages to those who own the means of production.  The industrial bourgeoisie.  The proletariat wants to maximize their pay.  The bourgeoisie wants to maximize their profits.  Of course, one can only gain if the other loses.  Ergo, this is a class struggle.  Between the working majority.  And the capital owning minority.  Which is wrong according to Marxism.  And can only end in a proletarian revolution.  After which everyone will live a life of plenty in a classless, stateless, property-less society.  Because everyone will feel the love and work real hard to produce a lot.  Even though they won’t make an extra dime for all their extra work.  It will be a social utopia where society takes from those according to ability and gives to those according to need.  And they’ll sing workers’ songs as they eat and drink and scratch their fat bellies at the end of the work day.

As a social utopia, it’s a pretty nice one.  Especially to the working class who have worked some pretty hard lives.  So they are quick to show a lot of need.  And little ability.  Because those with the most ability have to work the hardest.  Whereas those with the greatest need get more stuff.  Even if they don’t work.  At all.  According to theory, at least.  The working class may be uneducated laborers, but they understood this.  Especially when a leader came along to lead a proletarian revolution.  I get more for working less?  I’m with you, brother.  There have been quite a few such revolutions.  Though there are some degrees of differences, we can call most of these communist revolutions.  Because communist leaders based their philosophy on some form of Marxism.

Many countries had communist revolutions.  Russia was the first.  It became the Soviet Union.  Then China.  It became the People’s Republic of ChinaNorth Korea.  And Cuba.  To name a few.  And how did the proletariat make out in those countries?  Well, suffice it to say it wasn’t quite the utopia they were expecting.  By fighting for the people, Joseph Stalin became one of the greatest mass murderers of all time.  Beating out Adolf Hitler by scores.  There was no utopia in the Soviet Union.  Unless you liked fear and oppression.  And going hungry and lacking the necessities of life.  Ditto in China.  Only their proletariat wasn’t urban workers.  They were rural farmers and peasants.  Forced into collectivized farms.  Where food production plummeted.  Resulting in one of the 20th century’s most horrific famines.  Between famine, fear and oppression, Mao Tse-tung gave Joseph Stalin a run for his money as the greatest mass murderer of all time.  Not sure who won as records are a little sketchy.  But they probably hold first and second place.  Don’t know much about North Korea because it’s such a closed society.  But they suffer some of the greatest famines of modern time.  And spend most of their nights in the dark as they have little energy (seen from space you can tell North Korea from South Korea by the lights).  And the Cubans have more than once tried to escape their social utopia by crossing the Atlantic Ocean in rickety boats and rafts to reach America. 

Life got worse for the working class in general under communism.  But it got pretty good if you were in the communist party.  It was that ‘from those according to ability to those according to need’ thing.  It didn’t work in practice.  Because it turns out people want to benefit from their labors.  Which is the basis of the proletarian revolution in the first place.  And making them work harder for less just wasn’t going to cut it.  Especially when life was better under capitalism.  For it was better when the capitalist bourgeoisie did the exploiting than the communist party.  And it wasn’t just because of the famine, fear and oppression that came with the communists.  Because the capitalists paid you according to the quality of your labor.  Not by the quantity of your need.  So the harder you worked, the more they paid you.  And that’s the kind of thing that’ll get people to work harder.  Incentive.

Peron exploited the Descamisados

Tim Rice is one of the greatest lyricists in musical theater.  Andrew Lloyd Webber‘s greatest works were those he did with Rice.  Joseph and the Amazing Technicolor Dream CoatJesus Christ Superstar.  And Evita.  The story of Eva Perón.  Wife of Juan Perón.  And their rise to power in Argentina.  With the help of their descamisados.  The poor, shirtless workers.  Who loved Eva Perón.  As she loved them.

The musical Evita has a Che Guevara-like narrator named Che who tells the story.  And participates.  He sees the Peróns for who they are.  Sees how they exploit the descamisados for personal gain.  And bankrupts the nation.  Rice does a great job of turning this story into some great songs.  This story of a workers’ revolution is accessible.  And entertaining.  Here are some of the lyrics.  Starting with the workers’ demands.

Nationalization of the industries that the foreigners control
Participation in the profits that we make
Shorter hours
Higher wages
Votes for women
Larger dole
More public spending
A bigger slice of every cake

The hallmarks of any workers’ revolution.  Which of course the leader of the workers’ revolution promises in exchange for their vote.  Even though he would prefer not to have to deal with that pretense.

It’s annoying that we have to fight elections for our cause
The inconvenience–having to get a majority
If normal methods of persuasion fail to win us applause
There are other ways of establishing authority

Then the secret police echo these thoughts.

We have ways of making you vote for us,
or at least of making you abstain

Perón wins the election.  And gives his first speech on the balcony of the Casa Rosada.

Argentinos! Argentinos! We are all shirtless now!
Fighting against our common enemies–
Poverty, social injustice, foreign domination of our industries!
Reaching for our common goals–
Our independence, our dignity, our pride!
Let the world know that our great nation is awakening
and that its heart beats in the humble bodies of Juan Peron
and his wife, the first lady of Argentina,
Eva Duarte de Peron!

Yes, he is just one of them.  Shirtless.  And poor.  Though he says this from the ‘pink’ house.  Which is more palace than house.  Che is in the crowd.  And is not amused.

As a mere observer of this tasteless phenomenon, one has to admire the stage management
There again–perhaps I’m more than a mere observer –
listen to my enthusiasm, gentleman! Peron! Peron! Peron!
Look, if I take off my shirt, will you-

At which point the security police beat him and take him away.  For they don’t like dissenters.  Typical revolutionary stuff.  But in a story told so well.  Thanks to the great lyrics of Rice.  And the music of Webber.  And after Perón gets his power, how does Argentina do?  Does Perón deliver that Promised utopia?  Che explains in a brief but passionate monolog.

What’s new Buenos Aires? Your nation, which a few years ago had the second largest gold reserves in the world, is bankrupt! A country which grew up and grew rich on beef is rationing it! La Prensa, one of the few newspapers which dares to oppose Peronism, has been silenced, and so have all other reasonable voices! I’ll tell you what’s new Buenos Aires!

It’s a story as old as time.  The revolutionary leaders get richer.  The workers get poorer.

(The original Broadway cast recording includes Patti LuPone as Eva and Mandy Patinkin as Che.  Who’ve set the bar for these roles.  You can’t get better.  So buy this recording.  You won’t regret it.)

Famine, Fear and Oppression never take a Holiday

Sans-culottes, proletariats, descamisados or some other poor class of people a revolutionary leader champions, it always ends the same.  The leaders of the revolution always seem to do better.  And the poor class continues to suffer.  Often worse off than they were before.  Some leaders come and go.  But the suffering of the masses usually lingers.  For famine, fear and oppression never take a holiday.  But liberty does.  Sadly.

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