The Corner

Hauser’s Law: This Reality Isn’t Negotiable

According to the Washington Post, Democrats are continuing to push for an increase in marginal rates, but only on the very rich.

A faction of congressional Democrats is making a push to persuade President Obama to consider a compromise on tax policy that would leave only the nation’s 315,000 richest households facing higher taxes in January.

That’s because these Democrats still think that under the current tax code they will be able to raise more revenue by letting marginal rates go up. But that ignores the fact that the federal government has never been able to get much more than 19 percent of GDP in tax revenues, and sustain that level for very long, no matter how high the top marginal tax rate goes. Consider this chart:

It shows the historical path of federal taxation as a percentage of GDP (using the earliest records available from the OMB) alongside top-marginal-tax-rate data from the Tax Policy Center. From 1930 to 2010, tax-revenue collection in the United States has never topped 20.9 percent, averaging 16.5 percent of GDP over 80 years. This despite the drastic historical fluctuation in tax rates on the wealthiest Americans.

This reality is called Hauser’s Law, after Standford University professor Kurt Hauser, who had a very good piece in the Wall Street Journal this weekend:

Higher taxes discourage the “animal spirits” of entrepreneurship. When tax rates are raised, taxpayers are encouraged to shift, hide and underreport income. Taxpayers divert their effort from pro-growth productive investments to seeking tax shelters, tax havens and tax exempt investments. This behavior tends to dampen economic growth and job creation. Lower taxes increase the incentives to work, produce, save and invest, thereby encouraging capital formation and jobs. Taxpayers have less incentive to shelter and shift income.

If you are interested, I recently made the same case (that lawmakers shouldn’t count on increases in revenue to address our debt problem) on Bloomberg TV.

However, Hauser’s Law also implies that Republicans shouldn’t count of growth alone to get us out of this mess. They, too, need to get serious about cutting spending.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

Most Popular

Law & the Courts

Why Wasn’t Andrew McCabe Charged?

The Justice Department announced Friday that it is closing its investigation of Andrew McCabe, the FBI’s former deputy director, over his false statements to investigators probing an unauthorized leak that McCabe had orchestrated. McCabe was fired in March 2018, shortly after a blistering Justice Department ... Read More
Law & the Courts

Why Wasn’t Andrew McCabe Charged?

The Justice Department announced Friday that it is closing its investigation of Andrew McCabe, the FBI’s former deputy director, over his false statements to investigators probing an unauthorized leak that McCabe had orchestrated. McCabe was fired in March 2018, shortly after a blistering Justice Department ... Read More
Elections

The Media’s Bernie Sanders Makeover Begins

Just you watch: By the time Election Day rolls around in November, liberal columnists will be telling us that Bernie Sanders is the “real conservative” in the presidential race. Many among the center–left commentariat are struggling to come to terms with the likelihood that the Democratic Party will ... Read More
Elections

The Media’s Bernie Sanders Makeover Begins

Just you watch: By the time Election Day rolls around in November, liberal columnists will be telling us that Bernie Sanders is the “real conservative” in the presidential race. Many among the center–left commentariat are struggling to come to terms with the likelihood that the Democratic Party will ... Read More
Elections

There’s Zero Chance Bloomberg Would Pick Hillary

There’s no better evidence that Mike Bloomberg’s chances of getting the Democratic nomination are on the rise than the fact that the opportunistic Hillary Clinton is already trying to grab a piece of the action. The Drudge Report startled the political world on Saturday by noting that “sources close to ... Read More
Elections

There’s Zero Chance Bloomberg Would Pick Hillary

There’s no better evidence that Mike Bloomberg’s chances of getting the Democratic nomination are on the rise than the fact that the opportunistic Hillary Clinton is already trying to grab a piece of the action. The Drudge Report startled the political world on Saturday by noting that “sources close to ... Read More
Religion

Getting Real About Christianity

Charlotte, N.C. -- There were women weeping in a chapel here. One woman named Veronica was nearly inconsolable. She was talking about the crucifixion of Christ as if it was happening right then and there. She was feeling it. She was seeing it as the consequences of her sins. She was overwhelmed by the love of a ... Read More
Religion

Getting Real About Christianity

Charlotte, N.C. -- There were women weeping in a chapel here. One woman named Veronica was nearly inconsolable. She was talking about the crucifixion of Christ as if it was happening right then and there. She was feeling it. She was seeing it as the consequences of her sins. She was overwhelmed by the love of a ... Read More

Socialism . . . But?

For once, conservatives were ahead of the curve. American conservatism functioned as a political mass movement in the postwar era not because of the rhetorical gifts of its chief expositors (William F. Buckley Jr. et al.) nor because of the intellectual prowess of its best and most creative minds (ask George ... Read More

Socialism . . . But?

For once, conservatives were ahead of the curve. American conservatism functioned as a political mass movement in the postwar era not because of the rhetorical gifts of its chief expositors (William F. Buckley Jr. et al.) nor because of the intellectual prowess of its best and most creative minds (ask George ... Read More