Hillary Clinton: Accidental Supply-Sider

Hillary Clinton: Accidental Supply-Sider
She's right about Brazil's growth. She's wrong about its tax rates.

By STEVE FORBES

Secretary of State Hillary Clinton declared recently at the Brookings Institution, "The rich are not paying their fair share."

She then went on to praise Brazil as the tax holy grail for the rest of the world: "Brazil has the highest tax-to-GDP rate in the Western Hemisphere and guess what—it's growing like crazy." At first blush those kinds of words must make her neosocialist boss, President Obama, jump for joy. But is the secretary of state actually a supply-side subversive?

Take a look at Brazil's income tax rates—they are lower than ours. The highest rate is a mere 27.5%, far below our top federal rate of 35%, which, given the complexity of our tax code, is actually closer to 38%. Moreover, that exaction will climb to almost 43% come January.

Isn't Brazil's success an example of what Ronald Reagan and other tax cutters have always claimed: Lower rates generate more economic activity, which, in turn, generates more government revenue?

Sadly, for our beleaguered economy, Hillary Clinton and her staff had no idea that Brazil's income tax rate on the rich is slightly lower than that levied even in Ronald Reagan's heyday (28%), a rate Bill Clinton railed against when he was running for the White House.

Mrs. Clinton, Mr. Obama and the rest of the administration don't grasp that the top 1% of income earners in the U.S. already pay about 40% of federal income tax receipts, and the top 5% pay some 60%. When President Reagan took office the top tax rate was 70%, with the highest income earners paying a mere 18% of federal income tax receipts. By the time Reagan had whacked the top rate down to 28%, the proportion paid by the rich had soared to well over 30%.
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Mrs. Clinton, Mr. Obama and their friends also have no conception of capital creation. Low tax rates encourage people to take risks on new businesses, products and services. While most of these fail, the handful that succeed generate vast amounts in new assets.

Take the current stock market hottie, Apple. Before its dazzling train of iPods, iPhones and iPads, Apple was on the verge of extinction. Today the company is worth more than $240 billion, and Steve Jobs is high on the Forbes rich list. As a result, the government has collected billions of dollars in taxes on capital gains, corporate taxes and other levies, as well as on the profits from all of Apple's vendors. AT&T, for example, has been an enormous beneficiary of Apple's technology, as its network is the exclusive provider for the iPhone and iPad.

Clinton/Obama statists will never grasp the truth that those who create wealth will almost always reinvest it far more productively than government bureaucrats. Bill and Melinda Gates have established a foundation with assets of $35 billion. Does anyone really believe that money would do the world more good if it were put in the hands of the bloated bureaucracies of the Department of Health & Human Services or the Department of Housing and Urban Development?

Fortunately, while this administration will never understand the dazzling, opportunity-creating dynamics of genuine free markets, the American people still do.

Mr. Forbes is CEO of Forbes Media and co-author of "How Capitalism Will Save Us: Why Free People and Free Markets Are the Best Answer in Today's Economy" (Crown Business, 2009).