Many analysts say the current Argentine judicial woes over the government's failure to pay its debts are a vendetta for not having followed the International Monetary Fund's directives. I disagree.
After all, the Argentine government has already reached an agreement to pay its debt to the Paris Club of creditors, which includes Germany, the United States, France, Great Britain and Japan. Meaning, the only countries able to choose a head of the IMF, the body concentrating most votes and an exclusive right to veto. These are furthermore the countries that could see their agreement with Argentina endangered as a result of court rulings against it.
Yet this conspiracy theory forged by sectors of the political Left is, in any case, a better explanation of events than the considerably more disturbing reality: that the legal norms U.S. courts apply favor finance and insurance industries generally, and not just the predatory "vulture" funds that have taken the Argentine state to court.
Meet me in the lobby
With the partial exception of the Clinton and Obama administrations, U.S. tax legislation changes since the 1980s have favored these industries, reducing maximum taxes on them from 70% to 35%.
Even if this tax rate still seems high to you, top executives and shareholders pay considerably less as the tax code allows them to classify most of their revenues as capital gains — which are taxable at a rate of 15%. Add to this a string of exemptions and one may understand why the best Mitt Romney could say in favor of his presidential candidacy in 2012 was that he had never paid less than 15% in federal taxes on his revenues in the preceding decade.
Then there are the implicit subsidies paid to the main firms in these industries because their bankruptcy would have a systemic impact (which explains the U.S. government bailing them out with public funds during the 2008 crisis). Those hidden subsidies amount to advantages such as reducing the cost of taking on debt — an estimated $30 billion a year.
These advantages do not seem to be fortuitous, but indicative of the level of influence such industries wield over legislative decisions. Not surprisingly, these are the sectors of the economy that invest most in lobbying, to the tune of four persons paid to influence every Congressman. Their influence seems to have grown since the Supreme Court's 2010 decision to eliminate limits to amounts of cash firms and individuals could contribute to election campaigns.
Now, it seems, Argentina may be paying the price.
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