Hillary Clinton's Unfortunate Defense of Higher Taxes

Speaking to a DC crowd at the Brookings Institution, Hillary Clinton made an off-the-cuff comment about raising taxes that might get some play in the political entertainment world:

"Brazil has the highest tax-to-G.D.P. rate in the Western hemisphere. And guess what? It's growing like crazy. The rich are getting richer, but they are 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. My view is that you have to get many countries to increase their public revenues."

I imagine conservatives itching to point out that Brazil's payroll tax amounts to 40% of employers' compensation and 15% of employeess wages, and that Brazil boasts a pretty extravagant social welfare system, including universal health care, social security, and early retirement with full pay. This is our gold standard? they'll ask.

Brazil is not a good model for the United States' tax system. It has a wildly different template, with a patchwork of state and federal value-added taxes, marginal income taxes that don't exceed 25 percent (ours will jump to 38 when the Bush cuts expire) and the aforementioned extravagant payroll contributions. I don't know enough about Brazil's tax system to know if it has good lessons for U.S. makers. But I do know that "highest tax-to-GDP rate in the Western hemisphere" isn't a trophy we should necessary seek for its own sake.

I don't like the higher-tax-rates-are-like-Miracle-Grow argument, because our best revenue-raising taxes aren't sin taxes designed to punish bad things; rather many of them discourage things we consider to be good, like consumption, and income, and profitable investments. We pay these taxes because they support the government we want.

There's a better, simpler argument for higher taxes. Americans have collectively and repeatedly voted for federal programs like Medicare, Social Security, a strong national defense, a sturdy welfare net, nice roads and other things that cost more than we're paying in taxes. The short-term result is a structural deficit. The long-term risk is a rickety debt burden that makes it more expensive to borrow money and harder to run the government programs we like.

It's really great that a high-tax country is experiencing a consumer-driven boom. It's not great that one of two political parties in the United States is against all tax increases, ever, no matter what. But these things don't necessarily have anything to do with each other.