Financial reform tax to fight AIDs? I don’t think so.

            In a recent blog for the Huffington Post, Anand Reddi of the University of Colorado School of Medicine supported (here) an international financial speculative tax on the currency transactions market to fund initiatives by The Global Fund to Fight HIV/AIDS, Tuberculosis and Malaria to eliminate HIV mother-to-child transmission, prevent the spread of drug resistant tuberculosis and eliminate malaria. So far the fund has raised nearly $12 billion, falling short of its $20 billion dollar goal. The proposed tax, which would represent just .005% of such transactions and it is estimated the tax would raise as much as $28 billion dollars a year and cut speculative behavior by 14%. In his post, Reddi notes that Congressmen Peter Stark D-CA has already proposed such a tax in the United States and sixty countries also support such a tax. I, on the other hand, don’t.

            In this equation, there are several numbers to keep in mind.  First, yes the tax is small, just one dollar on every $1000. But by imposing such a tax, we are opening Pandora’s Box. Remember New Jersey Turnpike? Build in the 1940’s, it was only supposed to remain a toll road until the bonds issued to pay for it were paid off. Yea. It’s been almost 70 years and not only do the tolls remain, they continue to increase.  Taxes almost always increase and this tax will be no exception. But worse, it will dampen currency trading.  It is intended to curb “reduce the reckless financial speculation practices of international banks,” according to Reddi. So if it doesn’t have a curbing effect, do they raise the tax?  

             In addition, the tax is problematic for citizens in countries in times of hyper-inflation and devaluing currency. In 2007, Zimbabwe experienced levels of inflation as high as 25,000 percent. If I were to get paid in that currency, I’d want to bail out into U.S. dollars or another more stable currency as fast as I could so I could afford to feed myself. Examples of hyperinflation are peppered throughout some of the countries most at risk for disease such as HIV and malaria. Zimbabwe has the sixth highest percentage of people infected with HIV/AIDS in the world according to the CIA World Factbook. Other countries that experienced periods of hyperinflation, include Brazil and Argentina have high rates of malaria. So what is proposed is to take money from these countries just to filter it back through governments and non-profits and send it back in a diluted form.  Do these transactions make up a very tiny portion of currency transactions? Probably. But the effect on these nations is higher than on other traders because they are already facing vast instability in their own currency market. The problem would be magnified if the tax rises to accomplish the desired dampening effect. Do AIDs and hyperinflation correlate? I don’t know but they are both related to poor information flow, bad infrastructure and poverty. If a government can’t bring in tax revenue, they print money to pay their bills. An uneducated country with a poor infrastructure has a harder time creating high-paying jobs to create that yield tax revenue. If a mother infected with HIV can’t afford formula or doesn’t know breast milk is the primary vehicle of transmission from mother to child, she risks passing the illness onto her child.

             Then, there is the $28 billion per year sucked out of the market, when the Global Fund is only short $8 billion. What would the rest of the money fund? A chunk of it would go towards figuring that question out, creating a massively expensive multinational administrative nightmare. Consider this. Implementing Dodd-Frank is going to cost American taxpayers/consumers $20 billion. How much will it cost to spread all of this cash around to the various initiatives that need funding? After the trickle down effect, are those at risk of being infected with these diseases going to get anything substantially effective? That $28 billion could be put to better productive economic use.

             Basically, forcing currency traders to fund undefined initiatives is a waste of a good $28 billion per year. And, it ignores two important economic principles that are often overlooked. First, if you give a man a fish, he will eat for a day. Teach him to fish, he will eat for life.  Second, the more often money changes hands the more diluted it will become. I am not saying not to fund global initiatives for serious disease epidemics. But let’s keep the middle-man out, globally increase tax incentives for those who donate to targeted causes that pose an international health threat and provide immediate financial incentives to grow the infrastructure and industry of emerging countries with the highest risk on contracting these illnesses.