Hillary Clinton raised more than a few eyebrows last week, when she aired her own views (and not necessarily those of the Obama administration, she said) on federal tax policy, saying she feels the rich “are not paying their fair share in any nation that is facing the kind of employment issues [like the U.S.] – whether it’s individual, corporate or whatever the taxation forms are.” CNN reports Secretary Clinton pointed to Brazil, long known for its high taxes, as a model of successful economic policy. “Brazil has the highest tax-to-GDP rate [35.3 percent] in the Western Hemisphere and guess what – they’re growing like crazy,” Clinton said. “And the rich are getting richer, but they’re pulling people out of poverty.”
Clinton implies redistribution is necessary, or at least very useful, to poverty reduction. She is right that Brazil has substantially reduced poverty in the past decades: a study by Martin Ravallion of the World Bank’s Development Research Group notes a decline of the proportion of Brazilians living in extreme poverty – less than US $1.25 a day – from 17 percent to 8 percent during the period 1981-2005. But redistribution is not the only or best way of reducing poverty. China and India substantially reduced extreme poverty over the same period: China from 84 to 16 percent, and India from 60 to 42. Their tax-to-GDP ratios are only 18.3 and 18.8 percent, respectively.
China and India managed to reduce poverty while generating much greater economic growth than Brazil. Whereas Brazil’s GDP per capita increased an average of 0.8 percent a year from 1981 to 2005, China’s increased an average of 8.8 percent, and India’s an average of 3.9 percent over the same period.
Ravallion's World Bank study found that Brazil could have completely eliminated poverty in 2005 by taxing 0.7 percent of individual income in excess of the poverty line. In other words, if the Brazilian government had taxed each citizen’s income minus $1.25 per day at a rate of 0.7 percent, it should have had enough to guarantee every citizen a daily income of $1.25. Brazilians were and are taxed far in excess of this rate, yet extreme poverty persists despite the effects of cash transfers to the poor.
Clinton may be right that redistribution is in some cases an effective means of lifting people out of poverty, but the Brazilian example in and of itself is not compelling.