Prometheus 6

Justin Muzinich and Eric Werker suggest what they're calling a "global tax credit" as a replacement for foreign aid.

A solution to both problems would be to give tax credits to American companies that invest in qualified developing countries....Using the domestic program as a template, Congress should provide a 39-cent tax credit for every dollar of American investment in developing countries. If Company X were to build a $100 million factory in Madagascar, its tax bill would be reduced by $39 million. The lost tax revenue would be offset by reducing direct foreign aid by the same amount.

They say this will solve two problem, but the first is actually a repercussion of the second.

While foreign aid works in some situations, it has two huge problems. First, there is never enough money to go around. Last year, the United States provided $23 billion of development aid to foreign countries. This was more than any other donor, but it still resulted in very little for the billion people who live on less than $1 per day.

The second problem is that the money that does get distributed doesn’t always reach the people who need it. As the economist Jeffrey Sachs has noted, of every dollar given to sub-Saharan Africa, only about 40 cents is actually directed toward economic development. The rest goes to debt service, consultants and humanitarian emergencies. And after those expenses are subtracted, the remaining money is further reduced by mismanagement and corruption.

Some of that foreign aid IS for humanitarian emergencies. And the debt service is, of course, due us and will not be repudiated...which leaves the consultants, who under this proposal will likely get tax credits for getting paid.

What really set me off was this:

BARACK OBAMA has proposed that the United States double the amount it spends on foreign aid to $50 billion each year. But before promising to spend more taxpayer money, Mr. Obama and the other presidential candidates should look to reform our system of foreign aid by modeling it on the successful programs the United States has used to reduce domestic poverty.

I'm looking at the chasm between economic classes here in the USofA. I listen to Red State folks complaining about the S-CHIP bill saying how little they make, how they do without for their kids. The massive transfer of wealth from the lower economic classes and subsequent concentration in the top 5%.

In 2000, Congress created a program giving businesses that invest in poor communities within the United States a tax credit equal to 39 percent of the cost of the investment. The theory was that poverty and joblessness in poor communities could be ended only by developing local businesses, not by an aid check. Seven years later, so many businesses want to invest in poor areas that only a quarter of the companies that applied for tax credits in 2006 received them.

They subsidize new businesses and call that success. And the jobless rate in those communities are STILL double the national rate. 

And I realize he is deadly serious about using domestic programs as models. Not the programs that existed when poverty was dropping, but the current versions that provide the opportunity for someone to make money off the poor.

In general, lower income families tend to pay more for the exact same consumer product than families with higher incomes. For instance, 4.2 million lower income homeowners that earn less than $30,000 a year pay higher than average prices for their mortgages. About 4.5 million lower income households pay higher than average prices for auto loans. At least 1.6 million lower income adults pay excessive fees for furniture, appliances, and electronics. And, countless more pay high prices for other necessities, such as basic financial services, groceries, and insurance. Together, these extra costs add up to hundreds, sometimes thousands, of dollars unnecessarily spent by lower income families every year.