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Subject: There's No Escaping Hauser's Law
Ashley-the-man    12/12/2010 12:17:10 AM
Does Obama want to raise the tax rate on the “wealthy” to increase government revenues, or to merely punish this class of citizen? W. Kurt Hauser repeated his observation on government tax policy and tax receipts in the following December 16, 2010 article in the Wall Street Journal. Hauser published articles as far back as 1992 on the same subject. Because his empirical studies have observed that the take of the government has remained at about 19% of GDP regardless of the tax rate, his comments are being referred to as Hauser’s Law. From the Wall Street Journal NOVEMBER 26, 2010 There's No Escaping Hauser's Law Tax revenues as a share of GDP have averaged just under 19%, whether tax rates are cut or raised. Better to cut rates and get 19% of a larger pie. By W. KURT HAUSER Even amoebas learn by trial and error, but some economists and politicians do not. The Obama administration's budget projections claim that raising taxes on the top 2% of taxpayers, those individuals earning more than $200,000 and couples earning $250,000 or more, will increase revenues to the U.S. Treasury. The empirical evidence suggests otherwise. None of the personal income tax or capital gains tax increases enacted in the post-World War II period has raised the projected tax revenues. Over the past six decades, tax revenues as a percentage of GDP have averaged just under 19% regardless of the top marginal personal income tax rate. The top marginal rate has been as high as 92% (1952-53) and as low as 28% (1988-90). This observation was first reported in an op-ed I wrote for this newspaper in March 1993. A wit later dubbed this "Hauser's Law." Over this period there have been more than 30 major changes in the tax code including personal income tax rates, corporate tax rates, capital gains taxes, dividend taxes, investment tax credits, depreciation schedules, Social Security taxes, and the number of tax brackets among others. Yet during this period, federal government tax collections as a share of GDP have moved within a narrow band of just under 19% of GDP. Why? 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. On average, GDP has grown at a faster pace in the several quarters after taxes are lowered than the several quarters before the tax reductions. In the six quarters prior to the May 2003 Bush tax cuts, GDP grew at an average annual quarterly rate of 1.8%. In the six quarters following the tax cuts, GDP grew at an average annual quarterly rate of 3.8%. Yet taxes as a share of GDP have remained within a relatively narrow range as a percent of GDP in the entire post-World War II period. This is explained once the relationship between taxes and GDP growth is understood. Under a tax increase, the denominator, GDP, will rise less than forecast, while the numerator, tax revenues, will advance less than anticipated. Therefore the quotient, the percentage of GDP collected in taxes, will remain the same. Nineteen percent of a larger GDP is preferable to 19% of a smaller GDP. The target of the Obama tax hike is the top 2% of taxpayers, but the burden of the tax is likely to fall on the remaining 98%. The top 2% of income earners do not live in a vacuum. Our economy and society are interwoven. Employees and employers, providers and users, consumers and savers and investors are all interdependent. The wealthy have the highest propensity to save and invest. The wealthy also run the lion's share of small businesses. Most small business owners pay taxes at the personal income tax rate. Small businesses have created two-thirds of all new jobs during the past four decades and virtually all of the net new jobs from the early 1980s through the end of 2007, the beginning of the past recession. In other words, the Obama tax increases are targeted at those who are largely responsible for capital formation. Capital formation is the life blood for job creation. As jobs are created, more people pay income, Social Security and Medicare taxes. As the economy grows, corporate income tax receipts grow. Rising corporate profits provide an underpinning to the stock market, so capital gain and dividend tax collections increase. A pro-growth, low marginal personal tax rate stimulates capital formation and GDP, which triggers a higher level of tax receipts for the other sources of government revenue. It is generally accepted that if one taxes something, one gets less of it and if something is subsidized one gets more of it. The Obama administration is also propo
 
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heraldabc    the point being....   12/12/2010 12:58:05 AM

Does Obama want to raise the tax rate on the ?wealthy? to increase government revenues, or to merely punish this class of citizen? W. Kurt Hauser repeated his observation on government tax policy and tax receipts in the following December 16, 2010 article in the Wall Street Journal. Hauser published articles as far back as 1992 on the same subject.
Because his empirical studies have observed that the take of the government has remained at about 19% of GDP regardless of the tax rate, his comments are being referred to as Hauser?s Law.

From the Wall Street Journal
NOVEMBER 26, 2010
There's No Escaping Hauser's Law
Tax revenues as a share of GDP have averaged just under 19%, whether tax rates are cut or raised. Better to cut rates and get 19% of a larger pie.
By W. KURT HAUSER
Even amoebas learn by trial and error, but some economists and politicians do not. The Obama administration's budget projections claim that raising taxes on the top 2% of taxpayers, those individuals earning more than $200,000 and couples earning $250,000 or more, will increase revenues to the U.S. Treasury. The empirical evidence suggests otherwise. None of the personal income tax or capital gains tax increases enacted in the post-World War II period has raised the projected tax revenues.
Over the past six decades, tax revenues as a percentage of GDP have averaged just under 19% regardless of the top marginal personal income tax rate. The top marginal rate has been as high as 92% (1952-53) and as low as 28% (1988-90). This observation was first reported in an op-ed I wrote for this newspaper in March 1993. A wit later dubbed this "Hauser's Law."
Over this period there have been more than 30 major changes in the tax code including personal income tax rates, corporate tax rates, capital gains taxes, dividend taxes, investment tax credits, depreciation schedules, Social Security taxes, and the number of tax brackets among others. Yet during this period, federal government tax collections as a share of GDP have moved within a narrow band of just under 19% of GDP.
Why? 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.
On average, GDP has grown at a faster pace in the several quarters after taxes are lowered than the several quarters before the tax reductions. In the six quarters prior to the May 2003 Bush tax cuts, GDP grew at an average annual quarterly rate of 1.8%. In the six quarters following the tax cuts, GDP grew at an average annual quarterly rate of 3.8%. Yet taxes as a share of GDP have remained within a relatively narrow range as a percent of GDP in the entire post-World War II period.
This is explained once the relationship between taxes and GDP growth is understood. Under a tax increase, the denominator, GDP, will rise less than forecast, while the numerator, tax revenues, will advance less than anticipated. Therefore the quotient, the percentage of GDP collected in taxes, will remain the same. Nineteen percent of a larger GDP is preferable to 19% of a smaller GDP.
The target of the Obama tax hike is the top 2% of taxpayers, but the burden of the tax is likely to fall on the remaining 98%. The top 2% of income earners do not live in a vacuum. Our economy and society are interwoven. Employees and employers, providers and users, consumers and savers and investors are all interdependent. The wealthy have the highest propensity to save and invest. The wealthy also run the lion's share of small businesses. Most small business owners pay taxes at the personal income tax rate. Small businesses have created two-thirds of all new jobs during the past four decades and virtually all of the net new jobs from the early 1980s through the end of 2007, the beginning of the past recession.
In other words, the Obama tax increases are targeted at those who are largely responsible for capital formation. Capital formation is the life blood for job creation. As jobs are created, more people pay income, Social Security and Medicare taxes. As the economy grows, corporate income tax receipts grow. Rising corporate profits provide an underpinning to the stock market, so capital gain and dividend tax collections increase. A pro-growth, low marginal personal tax rate stimulates capital formation and GDP, which triggers a higher level of tax receipts for the
 
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YelliChink       12/13/2010 2:43:59 AM

Didn't see that one coming did ya, liberals?
 
H.


Your assumption is that those leftists want us to live well and the US to become rich and strong. That is not true. They want the opposite.
 
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YelliChink       12/13/2010 11:26:51 AM

Your assumption is that those leftists want us to live well and the US to become rich and strong. That is not true. They want the opposite.

And the proof just came in today:
 
"I think that we need to create a real crisis here so that the Republicans will have to answer for denying Americans unemployment benefits on the eve of the Christmas holiday," (Keith) Ellison said. "We let them off the hook, in my opinion."

 
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PlatypusMaximus       12/13/2010 2:39:26 PM
 
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PlatypusMaximus       12/13/2010 2:44:02 PM
Randall Hoven (dot com) has 2 great, evidence-based articles at the top of his site.
 
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