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Archive for May 28th, 2010

Hillary Clinton recently opined that Brazil was a great role model for the idea of soaking the rich with higher tax rates. She didn’t really offer evidence for that specific assertion, but Politico reports that she did say that “”Brazil has the highest tax-to-GDP rate in the Western Hemisphere and guess what — they’re growing like crazy.”

I’m not sure if “growing like crazy” is an accurate description, particularly since poor nations normally have decent growth rates because they start from such a low baseline.

But let’s excuse that bit of rhetorical excess and focus on the really flawed portion of her remarks.

Contrary to her direct quote, Brazil does not have the “highest tax-to-GDP rate in the Western Hemisphere.” It may have the highest tax burden in South America. And it may even have the highest tax burden in all of Latin America, but its overall tax burden of about 24 percent of GDP is slightly below the aggregate tax burden in America.

I suppose I should issue a caveat and say there’s a very slight chance that the recession has temporarily pushed American tax receipts as a share of GDP below the Brazilian level, but that isn’t apparent from the IMF data. Moreover, there’s no doubt that the tax burden in Canada is significantly higher than the Brazilian burden.

So Mrs. Clinton either was unaware that the United States and Canada are in the Western Hemisphere, or has no clue how to read fiscal statistics.

But let’s suspend reality and assume that Brazil has a higher tax-to-GDP ratio. Would that somehow be proof that Brazil is a role model for class-warfare taxation? There is no precise definition of that term, to be sure, but high tax rates on the rich presumably are a necessary component of any class-warfare system. Yet Brazil’s top tax rate is 27.5 percent. That’s not exactly a low-rate system such as Hong Kong, and it’s 27.5 percentage points higher than the zero-percent rate in the Cayman Islands, but it also happens to be significantly lower than the 35 percent (soon to be 39.6 percent) rate in the United States. If that’s class warfare, sign me up for the Brazilian approach.

I suppose it’s possible that Brazil’s top tax rate recently has been boosted, but that didn’t show up in a Google search. And even if the rate was just increased, that would hardly be proof of Mrs. Clinton’s strange hypothesis that high tax rates and/or high tax-to-GDP rates are a magical formula for growth. That would require looking at future economic performance with the higher top tax rate, not the recent growth rates with the 27.5 percent top tax rate.

But pointing out Mrs. Clinton’s mistakes seems a bit rude and I do like to be a gentleman, so let’s at least give her points for consistency. Earlier this year, she urged higher tax rates on the so-called rich in Pakistan, so at least she doesn’t discriminate in her desire to punish success.

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The Taxpayers Alliance has a brief but compelling video, entitled “How long do you work for the tax man?,” which shows how an ordinary worker in the United Kingdom spends more than one-half his day laboring for government. “What will they tax next?” is still the best policy video to come out of the U.K., in my humble opinion, but this one is very much worth watching – especially since America is becoming more like Europe with each passing day.

What makes the video particularly depressing is that it only considers the tax burden. Regulations and government spending also are a burden on average workers, largely because of foregone economic growth.

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The Secretary of the Treasury is a comedian as well as a tax cheat. At least that’s the only rational interpretation of his recent statements in Europe, where he used the do-as-I-say-not-as-I-do routine while pretending to tell the Europeans to be fiscally responsible. The Wall Street Journal, in keeping with the deadpan style of the gig, reported Geithner’s comments as if they represented serious advice: “U.S. Treasury Secretary Timothy Geithner landed in Europe and reasserted a traditional American role of dispenser of financial advice to the world, telling European governments to get their fiscal houses in order.”

The key to any good monologue, though, is knowing how to follow one joke with another. Geithner did not disappoint. He then did a 180-degree turn, leaving the audience rolling in the aisles by urging spending and bailout policies directly at odds with his previous joke: “Mr. Geithner pushed continental Europe to speed up the rescue of debt-laden economies, and to not stint on fiscal stimulus.”

Geithner may have been the headliner, but the Wall Street Journal also reported on some of the warm-up acts, including a so-so performance from Christina Romer, Chairman of the White House Council of Economic Advisors. Romer doesn’t have Geithner’s advantage of simultaneously being a tax cheat and being in charge of tax enforcement, so she’s tried to carve out an interesting niche in the world of humor by pushing for policies that contradict her academic writings. It’s unclear whether her reference to “pulling out” was an attempt to be risque (perhaps influenced by the President’s naughty use of the “teabagger” phrase), but here’s how the the WSJ covered her stand-up routine: “She told reporters that she, too, would warn European and other countries against pulling out of their stimulus plans too quickly. ‘There’s a certain amount of rush for the exits on fiscal policy,’ Ms. Romer said.”

Perhaps not surprisingly, some critics failed to undersand the subtle use of humor and irony by Obama officials and actually took the comments seriously. The article reports on a wet-blanket reaction from one think tank representative: “For Geithner critics, the new U.S. assertiveness is misplaced. Desmond Lachman, a former senior IMF European official who is now a researcher at the American Enterprise Institute, said the repeated bailouts engineered by Mr. Geithner have made the overall problem worse, and that the U.S. advice of providing even more financing for heavily indebted countries like Greece is bound to fail.”

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