With the Korean Peninsula on the brink of war, a major U.S. Military surge in Afghanistan, and a nuclear treaty that undermines the United States’ ability to defend itself, Secretary of State Hillary Clinton is concerning herself with… America’s taxes?
That’s right. Diplomat-in-Chief Clinton yesterday said that the U.S. tax rate isn’t high enough and that we should strive to become more like Brazil:
The rich are not paying their fair share in any nation that is facing the kind of employment issues (the United States is), whether it’s individual, corporate, whatever the taxation forms are.”
Brazil has the highest tax-to-GDP rate in the Western Hemisphere and guess what — it’s growing like crazy. And the rich are getting richer, but they’re pulling people out of poverty … There is a certain formula there that used to work for us until we abandoned it, to our regret in my opinion.”
Yes, Brazil. According to Heritage’s Index of Economic Freedom, Brazil’s economy is ranked 113th in the world, among “mostly unfree” nations. It charts below regional and world averages, and its GDP is one-tenth the size of the United States.’ Despite its otherwise poor record, Brazil is experiencing a nice spurt of economic growth, thanks mostly to monetary stimulus injected during the recent financial crisis, and its future prospects look good, as well, thanks to expectations of rapid increases in offshore oil production. Is Secretary Clinton implying we should be doing more offshore oil exploration and development at this point?
As a practical matter, the Brazilian ratio Sec. Clinton wants to shoot for is impossible for the United States to attain with its current tax system, unless Sec. Clinton would like to shrink the U.S. economy. As Heritage’s Curtis Dubay writes, throughout history, total income tax revenue raised in the United States as a share of the economy varies modestly, and never rises much above 20 percent, no matter the tax rate:
The income tax is the predominant revenue raiser for the federal government, and fluctuations in the revenue it collects have the biggest effect on the total change in tax collections year-to-year. Over the course of its history the top rate has been as high as 91 percent and as low as 28 percent. Even with such large variations in top rates, the income tax has raised a remarkably consistent amount of revenue.”
Because the revenue raised is effectively capped, the ratio of taxes to GDP can’t rise much unless the GDP itself begins to contract – or government generates revenue through new sources, such as the value added tax. Is Secretary Clinton finally pushing the Administration out of the closet on levying a massive new VAT tax?
It’s not the first time a member of the Obama Administration has weighed in on taxes. In April, Vice President Joe Biden said the U.S. tax system is unfair because, in his view, the wealthy don’t pay enough, despite the fact that the top one percent of income earners pay more than 40 percent of all income taxes.
However, for Secretary Clinton, whose job description revolves around foreign affairs, tax policy is something of a departure. Heritage’s Senior Fellow for Public Diplomacy Helle C. Dale writes:
As Secretary Clinton remarked Thursday, we are living in an increasingly complicated world, which makes the job of diplomacy — as she sees it — harder than ever. Maybe this is a good reason for her to stick to her day job, America’s diplomat in chief. Furthermore, wasn’t it Hillary Clinton’s husband who once as president admitted to a group of business executives that he had raised their tax rates too much? Higher taxes kill the economy. It is the last thing the United States need right now.”
