How Argentina screws the farmers

Mary Anastasia O'Grady:

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The recent trouble began not in Buenos Aires but in the provinces, where agriculture is the main economic activity. Farmers rebelled earlier this month when the government announced an increase in export taxes on agricultural products. Claims that the government's new "retention" rates -- aka export taxes -- are close to an expropriation are not without merit.

Take, for example, soy beans. The new export tax will be raised to 44% from 35%. But since farmers also have to pay a 35% income tax on profits, the effective tax rate is significantly higher. "The farmer ends up paying essentially a 63% tax on gross income," says Pablo Guidotti, dean of the school of government at Argentina's DiTella University. If the price of soy goes up, Mr. Guidotti adds, the "retention rate" increases until the government can end up taking as much as 95% of any marginal increase in farmers' gross income.

In response to the tax increases, farmers have blocked roads in some 300 locations around the country, pledging not to allow their goods to reach markets. The effects of the action have been felt in the capital, where demonstrators have taken to the streets in sympathy for the farmers and against what they say is government arrogance. The strike is now in its third week.

Mrs. Kirchner says the tax increase is a redistribution mechanism, suggesting that growers and ranchers have to be forced to share more of their good fortune with others. But the greater motivation behind the export-tax increase is inflation.

This government, it seems, will do just about anything to reduce inflation except the one thing that would solve the problem: Let the peso strengthen....

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While making farmers furious and reducing the incentive to produce, this does nothing to address the causes of the inflation, which are monetary expansion and the failure of the economy to attract investment and expand productive capacity. A strong peso and a commitment from the government to respect private property are what's needed to confront rising prices.

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Socialist redistribution and confiscatory tax rates will kill any economy, yet too many in south America can't seem to comprehend these facts. The Kirchners appear to be following the Chavez model to economic ruin. Argentina should be put on the watch list with Venezuela, Ecuador and Bolivia of countries in economic regression.

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