How Taxes Helped Colombia

If you listen to American politicians taxes are intrinsically evil: they only slow down growth, lead to more unemployment, and lower revenue.  If you study facts, however, you realize this is not true. And if you read Gustavo A. Flores-Macias’ op-ed today in the New York Times, you realize that taxes were instrumental in defeating FARC and the drug cartels in Colombia.

Macias’ thesis is that “Plan Colombia succeeded because, at the same time that it stepped up its antidrug efforts, Colombia aggressively reformed its tax system and greatly improved government accountability. Unless Mexico can do the same, antidrug efforts there will fail.”  On the supply side, defeating drug production requires reliable intelligence, a military under civilian command, and the public’s confidence.  All three require a government which can pay its staff well, protect informants, and purchase better arms than its opponents.  And those operations require money, and governments raise money through taxes.

This is how governments evolve: just as someone won’t buy fault products, citizens won’t pay taxes if a government is corrupt, does not protect its citizens, or maintain infrastructure.  So in exchange for more growth (more tax revenue), a government must increase its competence.  There’s no magic threshold number, but a country like Mexico, which only collects revenue equivalent to 11% of GDP, clearly requires a larger government.  Until Mexico can collect more revenue, it will be difficult to impossible to conquer its drug lords.