Skip to comments.You Can't Soak the Rich [Regardless of tax rates, federal tax revenue is always 19.5% of GDP]
Posted on 09/22/2008 3:19:03 PM PDT by grundle
Kurt Hauser is a San Francisco investment economist who, 15 years ago, published fresh and eye-opening data about the federal tax system. His findings imply that there are draconian constraints on the ability of tax-rate increases to generate fresh revenues. I think his discovery deserves to be called Hauser's Law
Like science, economics advances as verifiable patterns are recognized and codified.
On this page in 1993, he stated that "No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP."
The chart nearby, updating the evidence to 2007, confirms Hauser's Law. The federal tax "yield" (revenues divided by GDP) has remained close to 19.5%, even as the top tax bracket was brought down from 91% to the present 35%.
...tax revenue is directly proportional to GDP. So if we want to increase tax revenue, we need to increase GDP.
What happens if we instead raise tax rates? Economists of all persuasions accept that a tax rate hike will reduce GDP, in which case Hauser's Law says it will also lower tax revenue.
As Mr. Hauser said: "Raising taxes encourages taxpayers to shift, hide and underreport income. . . . Higher taxes reduce the incentives to work, produce, invest and save, thereby dampening overall economic activity and job creation."
...capital migrates away from regimes in which it is treated harshly, and toward regimes in which it is free to be invested profitably and safely. In this regard, the capital controlled by our richest citizens is especially tax-intolerant.
The economics of taxation will be moribund until economists accept and explain Hauser's Law. For progress to be made, they will have to face up to it, reconcile it with other facts, and incorporate it within the body of accepted knowledge.
(Excerpt) Read more at online.wsj.com ...
Bigger GDP = bigger pie for everybody (including the gov.)
God Almighty only asks for 10%. Where in blazes does the gov get the nerve to ask for double that?
Think about it. Soros would pay. Warren Buffett will at least get his wish and pay more taxes. Steven Spielberg, etc.
Most of the rich are fashionable liberals. I'd love to see them pay a tax I don't have to pay.
Oh, and 501c3s will not count to lower figuring wealth, as holders of these bogus "charities" get to pocket the interest they earn.
New populism. Don't tax income, tax the excess wealth of rich liberals.
Now here is an observation that makes sense. The Laffer curve with Hauser’s law. Very cool.
At the rate we’re going, there will be no more rich to tax.
LOL. Okay, he is not stating that the Rates should be 20%, but rather, no matter what the rates, the result is that the collections are 20% of GDP due to the operation of the economy as an inverse function of the rates...the higher the rates the slower the economy and the lower the collections, but it still can’t get above 20%. Lower the rates and the thing takes off and they still get 20% of a much larger pie. See, it’s what you really want.
I don’t think much of your idea. Did you bother to read the article?
Rich liberals invest their money too. Sometimes they even give as much of it away as conservative rich people. How about we leave them all alone?
When or when is this very simple lesson going to be learned by the Rats?
It’s fascinating that something as large and apparently complex as the U.S. economy nevertheless has an inherent regulation, almost like homeostasis, that is basically impervious to government meddling.
I wonder if research would show that the percentage of wealthy, middle class and poor stays about the same no matter how large GDP is and then, separately, no matter what tax rates are.
Now we are getting somewhere. fightinJAG for President!
Trying to live by preying off others instead of by cooperating with them for mutual benefit, fails comprehensively every way it has ever been tried. It isn't the tactics, it is the goal and principle.
Come again? The Laffer Curve... you know, the higher the rates the lower the collections, and its inverse.
Simply put, what works for businesses (which is what I believe Prof. Laffer’s point was) works for individuals. Which is to say there is a revenue maximizing rate for income taxes.
“Its fascinating that something as large and apparently complex as the U.S. economy nevertheless has an inherent regulation, almost like homeostasis, that is basically impervious to government meddling.”
It’s like Einstein said, “The eternal mystery of the universe is its comprehensibility.”
“I wonder if research would show that the percentage of wealthy, middle class and poor stays about the same no matter how large GDP is and then, separately, no matter what tax rates are.”
I’m not sure, but I believe it would depend on whether the economy was shrinking or growing (i.e. becoming more or less productive), and it would definitely depend on how you define “rich” and “poor.” Common sense tells me that, at all times, a majority of people should fall between the two.
One problem I’ve always had with the Laffer Curve is how it’s used to justify tax cuts—as if the goal of tax policy should be to have the largest possible revenue. Maybe we conservatives should start advocating tax hikes. If the economy slows and revenue slides, then they’d have to make budget cuts, wouldn’t they? Then again, socialists love recessions, and they’d blame capitalism for the downturn. Nevermind.
That was very interesting. Kind of like listening to the muses of a Professor holding a cup of tea as he stares out the window.
Heh. I was thinking back to the Bible's example of the outrage of a man-led government...that the King would demand the first 10%.
10% to charity, and 9% to the military/police seems about right.
You forgot the SARCASM OFF tag at the end.
There is the fallacy in your logic. They never cut spending. There is no care for whether spending creates a deficit. It's the same logical fallacy that haunts the "fair tax" people. They mistakenly believe that reduced revenues would result in reduced spending. Politicians have a mental disconnect on the concept with living within a budget.
“Politicians have a mental disconnect on the concept with living within a budget.”
But there must be a way to stop them, short of the impossible dream of electing people that will shrink government. How about runnaway inflation, Weimar-style?
Choose well on Nov 4th.
“Choose well on Nov 4th.”
What, are you kidding? Have you listened to McCain? He’s behind the bailouts, he wants to cover people when they move from job to job, and he wants nationalized community colleges. Need I go on?
save for later
1. something as large and apparently complex as the U.S. economy nevertheless has an inherent regulation, almost like homeostasis, that is basically impervious to government meddling.
IMHO, not really. The economy will shrink, expand or growth rate slow down at different rates due to government meddling (tax rates and regulation) according to Laffer Curve, the tax revenue collected by the government will stay almost constant as a percentage of the GDP / economy, according to Hauser Law.
2. I wonder if research would show that the percentage of wealthy, middle class and poor stays about the same...
I don't think research is necessary. By definition, generally the "wealthy, middle class and poor" are expressed as percentile of population, so then by definition, the percentage of each group would stay exactly the same, unless groups percentiles are defined differently / changed.
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