Foreign Aid: What Could Your One Percent Do?In a recent poll, 81 percent of Americans said they believe that the U.S. has “a moral responsibility to work and reduce hunger and severe poverty in poor countries.” However, Americans also think that America is already spending a significant portion of its annual budget on foreign aid; when polled, some Americans thought the U.S. spent as much as 30 percent, more than is actually spent on Social Security or Medicare, when in reality only about 1 percent of the budget is allocated to foreign aid.

And while 1 percent of the American budget is a large sum in absolute dollars, even compared to other developed nation’s foreign aid spending, America does not rank in the top 15 industrialized countries when compared to the percent of its gross national income. Britain, who does make the top 15, spent about 6 percent of its gross national income in 2012, so while they are spending less money in actual dollars, they are willing to allocate a higher percentage of their budget toward assisting economically struggling countries.

As the American foreign assistance budget stands now, citizens pay pennies on the dollar toward saving and improving the lives of people living in poverty. The average median income for residents of Washington State in 2013 was $58,405. Households making the median annual income would have paid roughly $10,000 in income taxes. Of their tax money, about $100 would have been put toward foreign aid.

Foreign aid dollars are worked in a variety of ways. In 2012, the economic assistance budget of about $31 billion was split among spending on development assistance, migration and refugee assistance, international narcotics control and law enforcement, and global health and child survival. According to a tax calculator created by the nonprofit, that family’s $100 could have been used to provide someone with 268 days of HIV treatments, 61 life-saving vaccines or 11 bed nets that save lives.

Tax season is understandably not everyone’s favorite time of year, but it is good to know not only where our dollars are being spent, but also the amount of good they can do. Even with only a small percentage of our taxes being spent on foreign aid, they are managed through effective programs that make real differences.

Brittney Dimond

Sources: Gates Notes, One, OFM, National Priorities, OXFAMAmerica
Photo:  Flickr

Transitioning from Aid to Domestic Resource Mobilization
They say that the only certainties in life are death and taxes. However, for developing countries, the latter might not be such a sure thing. In fact, effective tax policies, often referred to as domestic resource mobilization (DRM), are one of the biggest development issues facing poorer nations.

Without it, they may remain dependent on aid and unable to adequately meet the needs of their citizens, trapped in a cycle of poorly funded, haphazard social programs partially administrated by foreign donors. If the goal of aid is to create a world in which no one needs it, domestic resource mobilization may represent poor countries’ golden ticket to financial independence.

Domestic resource mobilization is essentially both a strategy and development outcome, in which a country becomes capable of funding its own social programs. Aid strategies variously focus on different indicators of development, such as improved health, education, or business opportunity. However, the purpose of domestic resource mobilization is to empower a developing country to improve these indicators using its own financial and administrative resources.

Obviously, this can be a huge challenge. Taxes in some countries can be unenforceable, insupportable, poorly allocated, or dissipated due to corruption. In much of sub-Saharan Africa, for example, simply reaching a large rural population is a barrier in and of itself, not to mention negotiating a socially sustainable level of taxation for those living off the grid in poverty.

In countries such as Nigeria, which has one of the worst levels of inequality and corruption, a great deal of tax income is squandered by shady officials, rather than redistributed to those living in extreme poverty.

According to the 2011 report by African Economic Outlook, revenue sources in sub-Saharan Africa grew from $100 billion in 2000 to about $513 billion in 2011. To put those numbers in perspective, official development assistance (ODA) grew from only $20 billion to $60 billion in the same time period.

Simply put, the amount of potential tax revenue far outweighs foreign funding of development programs. And those figures represent only known sources; many businesses and potential revenue streams lie outside the formal economy.

A lack of domestic resource mobilization fosters dependency on aid, which is why this technique has been acquiring greater importance for international donors in recent years. In April of 2014, developing countries and international policy-makers met in Mexico City to address, among other things, effective domestic resource mobilization.

There was a general consensus on the importance of DRM, with developing countries’ ministers calling for an increase in support from aid donors towards that end. For those at the conference, DRM represented a win-win; aid donors benefit from a potential scale-down of funding, while developing countries increase their governance capabilities while independently enhancing their own development goals.

More recently, at the Financing for Development conference in the Ethiopian capital of Addis Ababa, DRM was clearly a priority. Around 120 of 151 speeches by the foreign ministers in attendance at least mentioned domestic resource mobilization.

The United States Agency for International Development (USAID), as well as their foreign counterparts from Germany, the U.K. and elsewhere, even composed a policy initiative to advance the goal of achieving domestic resource mobilization in aid-recipient countries.

The initiative, dubbed Addis Tax Initiative, initially drew 30 members which agreed to a set of policy outcomes. Among those outcomes was a commitment that aid donors would double financial support to develop DRM, that members would compose a set of key DRM goals, and that countries would institute DRM policies which are harmonious with those of other developing countries.

The potential for DRM to transform a developing country’s condition can be neatly illustrated by the relationship between USAID and the country of Georgia. USAID began, in the early 2000s, to target border and customs tax compliance practices in the country.

The program was designed to increase a legitimate tax base, cut down on corruption, and improve collection efficiency. Over the nine-year duration of the program, the country managed to increase its tax base to 12 percent of its GDP, as well as reduce the rate of corruption (in the form of collected bribes) by about 30 percent.

While improving domestic resource mobilization is not the be-all, end-all of development and poverty reduction, it certainly should be the focus of a comprehensive development portfolio. Enhancing aid recipients’ ability to manage its own financial resources as well as improve the strength of its governance is essential to reducing the need for aid and lifting people out of poverty finally and sustainably.

Derek Marion

Sources: CSIS, Devex, African Economic Outlook
Photo: Flickr

capital gains taxIt is no secret that Congress is home to some of the wealthiest Americans. The average salary of a congressional member is $174,000 annually, and about 200 members are multimillionaires. Their salary alone puts every congressional member in the top 6 percent of earners in the U.S.

The vast majority of congressional members come from upper-middle class families, where connections to senior political members and other social and religious groups are plentiful.

In his State of the Union address, President Barack Obama addressed higher taxes on the wealthy, which are unpopular and unlikely to pass in Congress. His increase is substantial — raising it from 23.8 to 28 percent on couples making over $500,000. This bill in particular received backlash from Republicans.

“Taxes on capital income, such as the capital gains tax, are among the worst ways to raise revenue from the perspective of economic growth,” said Greg Mankiw, professor of economics at Harvard University.

Tax credits would go toward the middle class and the increase in taxes would raise around $200 billion in the next decade.

Former Rep. Tom Perriello wrote, “During the 2010 lame-duck session, Congress passed an $858 billion tax-cut extension, leaving in place generous [Bush-era] tax breaks for the wealthiest Americans. Why was such an opportunity to address inequality and spur economic growth via our tax code missed? … Most of those who prevented the bill from getting a vote before the election privately argued that the income threshold was too low.”

President Obama recently released a plan for a new tax strategy that would affect the rate of the capital gains tax and close lucrative loopholes that avoid the capital gains tax. In addition, he is proposing to close a loophole that allows heirs to avoid paying taxes on large estates.

The economy has recovered since the economic crisis of 2008, and much of this is due to Obama’s financial politics of raising taxes on the high-income earners in America. These tax increases do benefit the middle class by approximately $320 billion in tax credits that would be allotted.

The tax credits will go toward expanding higher education and providing greater support for child care. In addition, they provide substantial assistance to families in the middle-income classes. They provide about $500 for married couples to curb the cost of child care for working-class Americans.

– Maxine Gordon

Sources: NPR, The Atlantic, The Washington Post, Yahoo News

Every day, people make the difficult decision to travel across the globe in search of better opportunities for their families and for themselves. They risk deportation, social stigma and alienation, and work in areas that native-born citizens would scorn.

More than 230 million people live outside of their country of birth, many of whom send part of their income to relatives and friends living in their home countries. Known as remittances, these cash flows accounted for an estimated $404 billion sent to developing countries in 2013, equivalent to more than three times the size of official development assistance.

This process is generally viewed as favorable to all parties involved, including the world economy which benefits from the exchange of ideas and optimization of worker productivity. However, a recent report by the Overseas Development Institute (ODI) reveals that not all overseas workers benefit equally from current remittance practices.

African immigrants living in the European Union and United States are typically charged 12 percent for each $200 money wire, nearly twice as much as the global average. Equivalent to $1.8 billion annually, ODI reports the elimination of this super tax could pay for the education of approximately 14 million sub-Saharan African primary school children, improved sanitation for 8 million, or clean water for 21 million.

Furthermore, these remittances account for 2 percent of the region’s GDP, or $32 billion. With international aid to the region expected to stagnate in the coming years, lowering the wire charges down to the G8 and G20’s pledge of 5 percent would increase the overall flow of transfers and a greater proportion of the transfer would reach the intended beneficiaries.

Factors such as Africa’s poor infrastructure are often blamed for the high cost of transfer rates. However, organizations such as the ODI argue that “in an age of mobile banking, internet transfers and rapid technological innovation, no region should be paying charges at the levels reported for Africa.’

In a realm of cryptocurrency, where Bitcoin may be a viable alternative to the vast surcharges accrued by African migrant money wires, having such a large discrepancy between overseas remittances seems more than archaic. Instead of blaming undeveloped aspects of Africa as the reason for these high percentage rates, companies should be investing in innovative techniques to bring African migrants’ remittance rates down to the rest of the global standard.

– Emily Bajet

Sources: ODI, World Bank, Aljazeera
Photo: The World Bank

Despite having a population under 30,000, the British Virgin Islands (BVI) attracted more foreign investment in 2013 than the world’s two largest emerging economies—Brazil and India—according to a UN survey.

The islands house some of the better-known corporate tax shelters where transnational corporations secret their profits in order to avoid steeper taxes in the nations where they operate. The ethics of such tax loopholes aside, the archipelago benefitted from $92 billion in outside money last year. To put that number in perspective, the U.S. (as the world’s largest economy) received $159 billion in foreign investment.

However, it is somewhat deceptive to suggest that these investments are 100% comparable. Ultimately, the money that moves through the BVI isn’t going there for development or industry, but simply for the purposes of treasury.

An organization known as Tax Justice USA reports $150 billion in tax revenue is lost each year in the U.S. as a result of international corporations using tax havens like the BVI. However, money is not just leaving the developed world. Tax Justice cites a report that shows from 2000-2008, $810 billion of what it calls “illicit money” left the developing world on an annual basis.

The designation as “illicit” refers to money that leaves its country of origin without record and through legally questionable means. These funds are then funneled into tax havens, creating a leaching effect on development and aid resources.

As it pertains to the U.S., the loss in revenue is not on any parties’ political agenda despite the fact that nearly every major American corporation makes use of states like the BVI including the tech giants Apple and Microsoft.

In the U.S. Senator Bernie Sanders (I-VT) is essentially the lone voice in the fight for fairness in corporate taxation. In February of 2013 he introduced a bill to the Senate called the “Corporate Tax Dodging Prevention Act” that would prohibit the use of offshore tax havens.

According to Sanders, “You can’t be an American company only when you want a massive bailout from the American people. You have also got to be an American company, and pay your fair share of taxes, as we struggle with the deficit and adequate funding for the needs of the American people.”

As of early 2014 the bill is still in committee.

Although lost tax revenue is a frustrating loss for the developed world, the consequences in the developing world are much more dramatic. It’s hard not to imagine, for instance, the positive impact $92 billion dollars (the amount received by the BVI) would have in real terms on poverty in the developing world.

In Brazil, nearly 9% of the population lives on less $1.30 per day. In India, 33% of the population lives below the poverty line. In these the largest of the emerging economies this sort of outside investment could potentially lift millions out of poverty if the funds were applied to improving healthcare and education.

Without any comprehensive change on the horizon, there still remains some hope that tax reform may be on the way. The UN report has raised a few eyebrows in developed nations (like those Senator Bernie Sanders), and the increased awareness along with the UN’s recommendations might lead to an international agreement on this issue.

Chase Colton

Sources: UNICEF, Huffington Post, The Rio Times, Business Insider, Global Financial Integrity , Tax Justice USA, Reuters
Photo: Top-10-List

In a recent study done by a charity, ActionAid, almost half of all money invested in developing countries is channeled through tax havens and deprives the world’s poorest of billions of dollars. The Organisation for Economic Co-operation and Development estimates that the money lost to developing countries due to tax havens is almost three times more than what they receive in aid every year.

In the UK, companies such as Google and Amazon have recently proved troublesome in tax avoidance and the result is staggering to poor countries that are ill equipped to handle the repercussions. ActionAid reported that one single transaction through UK-linked tax havens would have provided India with USD 2.2 billion in tax. This sum could potentially provide every Indian primary school child with a subsidized lunch meal for an entire year.

Other countries are effected in similar ways. A major mining company reports that 84% of its revenue comes from Africa but it only has four of its 81 subsidiaries registered in African countries. “Tax havens are one of the main obstacles in the fight against global poverty,” says Mike Lewis, ActionAid’s tax expert. The secrecy of these tax havens deprive developing countries of the important resources needed to provide life saving technologies and necessities such as hospitals, schools and clean water.

Currently, the UK is responsible for one in five global tax havens which proves to be more than any other country. Furthermore, G8 countries are collectively responsible for 40% of tax havens worldwide. A G8 Summit in June, will give world leaders a historic opportunity to address the problem of these tax havens that cheat the countries that need the money the most.

– Kira Maixner
Source Daily Express

Will Capping Charity Deductions Hurt?
Despite Congress’ efforts in January to increase the tax savings for charitable donations, Obama’s newest proposal will lower it from the current 39.6% to 28%.  A cap on itemized deductions basically means that when someone makes a charitable donation, the amount that they can claim on their itemized tax deduction is now about 10.8% less than before. For example, say a person who earns about $450,000 a year makes a donation of $1000 to UNICEF. Originally, they would be able to write off $396 but with the change in charity deductions, can only write off $280.

This change, however, will only affect those in the top 35% tax bracket (those who make more than $335,000). For Obama, this is a major source of money that he would use to help pay for the $447 billion job plan he introduced a few years ago. It is also a way to make sure that the rich are paying a higher share of taxes and eliminating the loophole of writing-off thousands and thousands of dollars.

But what does this mean for nonprofits? And aside from them, what does the fact that this is even an issue mean about society and giving in general? To tackle the first question, referred to a study by economists John Bakija and Bradley Heim that concludes that for every 1% decrease in savings (in this case, about 10.8%), there is an equal 1% decrease in the amount given. They do, however, mention that there are many other factors that affect how much donors give and that this change will affect each charity in a different way.

The second question seems to be the elephant in the room. It is not naive to assume that people choose to give from the heart. Yes, we live in a country that allows those who donate to receive some sort of benefit for doing so, but at a time where our passions for a cause should be the driving cause of our actions and charity, why would receiving only 11% less on a donation make the wealthy hesitate when giving to a cause?

Perhaps the charted out reductions in total donations is frightening to some charities. They should still remain hopeful that there are those in the 35% tax bracket who will continue to donate at the rates they have previously, regardless of this new change in policy. Obama’s intent to bridge the income gap and require the wealthy to pay more taxes is understandable; but so is the fear of many nonprofit organizations.

– Deena Dulgerian

Source: The Chronicle of Philanthropy
Photo: Times Union

Raise the Minimum Wage, Inflation is Real!In his State of the Union address, President Obama has called for a national increase in the minimum wage standard of the country. The President has proposed to raise the minimum wage to $9 from its current $7.25. The newly proposed amount would also have safeguards to account for inflation, which the current standard does not.

This demand comes at a time when the National Center for Law and Economic Justice supports that one in seven Americans lives in poverty, with one in sixteen Americans living in deep poverty. Poverty, of course, exacerbates tension and has been linked to decreased social mobility, increased rates of violence, and increased likelihood of being a young parent.

Addressing poverty, both at home and abroad, is a key, central way to better the standard of living for millions as the better able families are to support themselves, the more efficient the employee, the better the consumer, and the more stable the economy.

CNNMoney, however, has debunked the myth that raising the minimum wage in America is the only element necessary to raise a family out of poverty. For a family of four making at least $9/hr, and while taking advantage of several key tax breaks, Tami Luhby of CNNMoney writes that the new rate would be barely enough to lift the family above the poverty line, and hardly enough to raise their standard of living by much in light of the U.S.’s dependence on a tax code that has been decried as “broken” by many.

While raising the minimum wage would be a step in the right direction towards addressing poverty in the United States, advocates for economic justice argue that helping people find higher-paying jobs is another, more effective, means of fighting poverty.

– Nina Narang

Sources: NCLEJ, CNNMoney
Photo: Occupy