Foreign aid: Why Ron Paul is wrong
ANOTHER line on foreign aid that I keep seeing on the internets lately is Ron Paul’s quip: “Foreign aid is taking money from poor people in rich countries and giving it to rich people in poor countries.” The second half of this quip identifies a real problem: too much foreign aid money gets cornered by local elites in recipient countries. Some of this is illegitimate cronyism or graft. Some is legitimate: foreign aid programmes have to be administered by well-educated locals, who generally come from well-off backgrounds and command relatively high salaries, all the higher as the foreign-aid programmes increase demand for their services. That’s a tough nut to crack. Anyway, this is a real problem that merits attention.
The first half of the quip is nonsense.
Foreign aid is funded out of federal taxes. I’m not sure who Ron Paul would consider “poor”, but the lower 40% of households in America pay no net federal income tax. They do pay social-insurance taxes, ie Social Security, Medicare and Medicaid, and a share of corporate taxes and federal excise taxes. Social-insurance taxes don’t fund foreign aid; they fund social insurance. Any money that poor people in America might be contributing to the foreign-aid budget would come out of corporate and excise taxes. From 2000-2007, according to the Tax Policy Foundation, the bottom quintile of American households paid combined corporate and excise taxes of 2% to 2.8% of income. For the second quintile, the rate was actually lower, maxing out at 2%. Foreign aid accounted for 1.28% of the federal budget in 2009 and 1.5% in 2010. So the most a household in the bottom quintile might be understood to have contributed to foreign aid would be something like 1.5% of 2.8% of its earnings, or 0.042%. Mean household income for the bottom quintile in 2009 was $11,552. So you’re talking about at most 0.042% of $11,552, which is $4.85. For the second-lowest quintile, you’re talking 1.5% of 2% of an average income of $29,257, or $8.78. The proportion of America’s foreign-aid budget that comes from poor people, rather than middle-class or rich people (all of whom, on a global scale, are extremely rich), is negligible, and it represents a negligible burden on those poor people’s incomes.