According to Álvaro García, the vice-president elect, a team of experts are busy trying to determine whether the tax will affect the wealth or patrimony of the individuals, and if it should start at US$300.000 or US$400.000 in terms of property owned. Both Morales and Garcia are certain this tax will not affect the poor. They are absolutely wrong. It is impossible to tax the rich without hurting the poor.

What don’t Evo and his aides understand this fact? The answer is deeply rooted into the 500-year-old economic history of Latin America. Unlike the British settlers, the Spaniards came to America not to settle down and enjoy individual and religious freedom; but to extract as much gold and silver as possible for the benefit of the Crown. Over time, and as the new population –the Mestizo—grew, the pure mining operation evolved into a sheer mercantilist system, whereby trade with other colonies (British, Dutch) was forbidden, intra-colonial trade was discouraged, the production of certain good was banned, and the colonies were highly taxed by the Crown. After independence in the early 1800s, the Mestizo heirs of the Crown instituted a more vicious and racist version of mercantilism, designed expressly to exclude certain groups (the majority) from the benefits of specialization and exchange. The cornerstone of this policy was the denial of their basic property rights.

It is no wonder Evo Morales and company believe that all the wealth in the world already exist and only needs to be redistributed, in this case, via taxes. This is obviously flawed to the extreme. Almost all the useful wealth in the world must be generated through the system of specialization and exchange, also known as the wealth-generating system. This system is an intricate web of interdependencies and interrelations in which each individual specializes in the production of one or very few goods and services and obtains everything else through the exchange process. In order for it to create the maximum amount of wealth –and have the best distribution among the participants–, the property rights of every individual must be respected to the utmost. That is, every individual must have absolute liberty to decide what to produce, with whom to exchange it and under what terms. A truly property rights regime is equivalent to a positive sum game or a win-win situation: every party to and exchange wins; and private activities generate social gains. This is clearly the alternative to Evo’s neo-colonial proposition.

When property rights are not respected and individuals are not free to trade as stated above, the system becomes a negative sum game: some parties to an exchange lose (or gain less than they should), and private activities generate social losses. Let’s illustrate this point. When an armed robber takes $1,000 from someone, two things occur: a pure “transfer” from the victim to the robber, and a loss to the society at large. The social loss occurs because the goods that the thief should have given in exchange for the $1,000 do not enter the system, and this has a ripple effect through the different transactions. Here is how it occurs. The victim now has $1,000 less to give in exchange for other goods and services. This loss is equivalent to a reduction in the productivity of his resources; it forces him to offer less of his product (a lower price) in exchange for each unit of the goods he acquires. This “lower price” will have a negative effect on the providers of those goods. In turn, these suppliers are forced to offer less of their product in exchange for the goods and services they demand; and so on throughout the system. The final result of the exaction of $1,000 is the loss of wealth in the amount of several thousand dollars.

This ripple effect throughout the system is the same regardless of the type of aggressor. When the State uses its power to force participants to use their property in ways that differ from what they would have chosen in freedom (e.g. through taxes, price fixing, trade barriers), the results are no different from those of an armed robbery: a few individuals benefit via transfers, while the bulk of society becomes impoverished. Evo’s tax proposal will have unintended consequences: it will hurt the poor.

The best way to redress the Indians is to restitute their property rights. How? By giving them direct claim to a portion of the natural resources of the country (through shares) and removing all impediments to trade, since these are equivalent to a tax against the poor. In other words, instead of taxing the rich, Evo should put a halt on taxing the poor. This will improve the well-being of the majority of Bolivians, especially the Indians.

* Rigoberto Stewart is the president of the Institute for Liberty and Policy Analysis, in Costa Rica.