You Can't Soak the Rich[No Matter the Tax Rate, Tax Revenues Remained about 19.5% of the GDP]

The Wall Street Journal ^ | MAY 20, 2008 | By DAVID RANSON

[Son House]

Will increasing tax rates on the rich increase revenues, or hold back the economy?

Mr. Hauser uncovered the means to answer these questions definitively. 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." What a pity that his discovery has not been more widely disseminated.

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%. This is what scientists call an "independence theorem," and it cuts the Gordian Knot of tax policy debate.

The data show that the tax yield has been independent of marginal tax rates over this period, but 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. That's a highly inconvenient truth for redistributive tax policy, and it flies in the face of deeply felt beliefs about social justice.

Because Mr. Hauser's horizontal straight line is a simple fact, it is ultimately far more compelling. It also presents a major opportunity. It seems likely that the tax system could maintain a 19.5% yield with a top bracket even lower than 35%.

Putting it a different way, 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.

[Son House]

"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."

^^^Except Economists of White House and Democrat persuasions

There is another chart referenced at the article link.

Pay attention to the GDP, Gross Domestic Product

[4Speed]

Its called ....Going Galt

A reaction to taxing the Rich Entrepreneurs. The people rule, even the rich people.

[WOBBLY BOB]

BTTT

[griswold3]

Your article about ‘Hauser’s Law’ is one of my favorites.
The ‘Progressives’ actually believe that tax revenues will go up if you increase the tax rate.Deficit spending is a future tax increase. Anyone operating a small business knows what the future holds. The Math never lies.

[hoosier hick]

And as income tax renvenue stays flat, the way to grow overall tax collections is through capital gains. Not by raising rates, but by allowing the economy to flourish....

hh

[Truth is a Weapon]

Ping

[Auntie Dem]

Income Tax Revenue as a Percent of GDP is not the same thing as Total Tax Revenue.

Let’s see some charts showing the correlation between marginal tax rates and Total Tax Revenue. (Lower rates = MORE Total Revenue)

All this chart says is if you raise tax rates, you tank the GDP, so Tax Revenue declines about the same percentage as GDP declined.

[FrankR]

Paraphrasing Rush from one of his books, "If you took all the money from all the rich, and divided it out amongst the "poor", in a period of time, the same people would be rich again, and those who were "poor" would again be poor.

It's not who has the money, it's how the money is handled.

All that stimulus money - once distributed - will wind up right back where it started, in the hands of businesses.

[CutePuppy]

Good article, worth reposting.

Cross-references:

You Can't Soak the Rich [Regardless of tax rates, federal tax revenue is always 19.5% of GDP] - FR / WSJ, 2008 September 22, by David Ranson

We are on The Laffer Curve - FR / Science Mag, 2009 September 16, S. Carroll

Hauser's Law together with the Laffer Curve is a very powerful combination.

[Son House]

This is what I see

Lower rates = Larger GDP = more jobs = more opportunity = MORE Total Revenue

[Son House]

Thanks for that, hopefully someone brighter than I will find some more current info on the GDP and post

[avacado]

"No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP."

Sort of a meaningless number. Would you rather have 19% of a robust and positive GDP or 19% of a weak and negative GDP? The goal is a robust and positive GDP. The 2003 tax cuts by 2006 had increased federal revenue by a little more than 40% while the GDP took off positive.

[Son House]

The 2003 tax cuts by 2006 ... while the GDP took off positive.

^
and tax increases move the GDP negative, the 19% of a weak and negative GDP we’ve got with Democrat policies

[avacado]

"and tax increases move the GDP negative"

They did not. GDP shot up to over 7% growth in one quarter. You need to fact check before posting that nonsense.

[avacado]

[arthurus]

Soak the rich. The rich leave.

[avacado]

"and tax increases move the GDP negative, the 19% of a weak and negative GDP we’ve got with Democrat policies"

My apologizes!!! I read your post wrong. I thought you said tax cuts caused a negative GDP. My apologizes!

[Ouderkirk]

The chart is correct. As rates fall the economy grows and the net difference to the treasury as a percentage of GDP remains constant. Yes, the total receipts to the treasury increased as the economy grew.

[CharacterCounts]

Let’s see some charts showing the correlation between marginal tax rates and Total Tax Revenue. (Lower rates = MORE Total Revenue)

That's implicit in the chart shown.

[Son House]

Thanks for posting that, funny to think McCain’s economic team couldn’t explain any of this before he lost to any tax and spend Democrat, I can only remember McCain saying “he wants to raise your taxes”, too little, to late