Will increasing tax rates on the rich increase revenues, as Barack Obama hopes, or hold back the economy, as John McCain fears? Or both?
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.
As the title notes, this is beyond awful. It confuses what may be a desire of the American people not to be taxed beyond 19.5% of GDP, under a variety of tax systems, with an unfounded claim that the American people could not be taxed at a higher rate (on GDP) than 19.5%.
Specifically, it ignores the base-broadening that has accompanied much of the reduction in the top marginal tax rate. It ignores the increasing contribution to revenues played by the payroll tax, which has nothing to do with the top marginal tax rate. It is not robust against the standard Laffer curve critique--it will eventually not hold up for a sufficiently low top marginal tax rate. And the list could be extended. These shortcomings are obvious to anyone who takes just a moment to consider the claim, and yet the Wall Street Journal publishes it. They have no one to blame but themselves for the low regard in which they are being held.
I have not been a subscriber to the Wall Street Journal for some time now. If you want to read a serious WSJ, go here.