The NYT on Saturday gave valuable op-ed space to hedge fund manager Justin
Muzinich to roll out his
big idea: cut direct US foreign aid, and use the money instead to give tax
breaks to hedge funds and others who invest in developing countries.
Congress should provide a 39-cent tax credit for every dollar of American
investment in developing countries. If Company X were to build a $100 million
factory in Madagascar, its tax bill would be reduced by $39 million. The lost
tax revenue would be offset by reducing direct foreign aid by the same amount.
Exactly how this is meant to help Madagascans living on less than $2 a day
is far from obvious: the wealth generated by a big factory is not very likely
to trickle down that far. But in any case the money wouldn’t go to places like
Madagascar, it would go to places like India and Brazil, which have more than
enough FDI already.
If American companies want to build factories in developing countries, all
power to them. But let’s not cut our foreign aid budget every time they do.