Liberty on Tap since 1984
Financial Columnist Terry Savage is Right!
John Skorburg shares with us his letter to the editor of the Chicago Sun-Times.....
Letter to the Editor
Chicago Sun-Times
Terry Savage is right (Why hiking taxes on the rich doesn’t work, September 13) and for many different reasons!
Economist William K. Hauser also documented this phenomenon in 1993, writing for the Hoover Institution. “No matter what the (income) tax rates have been, in postwar America (federal) tax revenues have remained at about 19.5% of GDP.”
Wainwright Economics has confirmed “Hauser’s Law” repeatedly in graphic form, the most recent time in the WSJ on May 17. It’s amazing how this economic truth has worked. In 1950, the top marginal tax rate on the ‘rich’ was 85%. And the federal share of our economic pie (revenue as a percentage of GDP) was slightly under 20%. In the late 1960’s, the top marginal tax rate declined to 70%, while the feds share stayed stable at 19.5%. When the top marginal tax rate declined to under 30% in 1990, federal tax revenues remained at 19.5%.
Based on this effect, the federal government could hike the marginal tax rate from just under 40% (today) to any higher number, and not move its share of the pie (revenue wise) above 20% of the economy.
Since lower marginal tax rates bring in the same percentage of revenues for the federal government, why try to move them even higher? Perhaps the rich are not the problem, but excess government spending could be!
John W. Skorburg, economist and policy advisor, The Heartland Institute, Chicago.
Letter to the Editor
Chicago Sun-Times
Terry Savage is right (Why hiking taxes on the rich doesn’t work, September 13) and for many different reasons!
Economist William K. Hauser also documented this phenomenon in 1993, writing for the Hoover Institution. “No matter what the (income) tax rates have been, in postwar America (federal) tax revenues have remained at about 19.5% of GDP.”
Wainwright Economics has confirmed “Hauser’s Law” repeatedly in graphic form, the most recent time in the WSJ on May 17. It’s amazing how this economic truth has worked. In 1950, the top marginal tax rate on the ‘rich’ was 85%. And the federal share of our economic pie (revenue as a percentage of GDP) was slightly under 20%. In the late 1960’s, the top marginal tax rate declined to 70%, while the feds share stayed stable at 19.5%. When the top marginal tax rate declined to under 30% in 1990, federal tax revenues remained at 19.5%.
Based on this effect, the federal government could hike the marginal tax rate from just under 40% (today) to any higher number, and not move its share of the pie (revenue wise) above 20% of the economy.
Since lower marginal tax rates bring in the same percentage of revenues for the federal government, why try to move them even higher? Perhaps the rich are not the problem, but excess government spending could be!
John W. Skorburg, economist and policy advisor, The Heartland Institute, Chicago.
Views: 37
Comment
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Comment by John W. Skorburg on September 16, 2010 at 3:41pm -
Ron, if any government would like to cut its spending......I would not complain. We do (indeed) need government spending on some items (law enforcement, defense, etc.) but once the optimal amount of government spending is reached, I'll vote for more for the private sector every time......The real debate appears to be over 'what's optimal', and I believe that many economists are doing a pretty good job of measuring this! Just check Heartland's PolicyBot and many good studies will pop up....Thanks for the comments! Marcotte, thanks for the graphs.....I need to think about what they mean too.
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Comment by Marcotte Anderson on September 16, 2010 at 3:28pm -
Not quite Ron, but I applaud you for trying to look at the situation in the most simplistic way possible. ;)
Here's a graph of the 4 types of taxes (individual and corporate income, social insurance, and excise/other) as a percent of GDP (plotted on the left axis), along with the top income tax brackets for corps and individuals (plotted on the right). I'm not sure what conclusions, if any, can be drawn from this.
Sources:
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=203
http://www.truthandpolitics.org/top-rates.php
Corp rate (pdf)
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Comment by Ronald A. Lau on September 16, 2010 at 2:46pm -
Ahhh... so the only fix is........ Cut Spending!
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Comment by John W. Skorburg on September 15, 2010 at 7:32pm
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You have made a very good (and important) point! The individual parts are very important; personal taxes, corporate, social insurance.....and I agree. When all is said and done, and you do add up the parts, the amount the government can acquire (or has acquired each year since 1950) -- hovers around 18-19% of the GDP. As Portfolio wisely notices, this has very little to do with actual growth of the economy (we can leave that debate for another time) but does appear to put an upper limit on how much the federal government can receive in revenues from the private sector. If this is true, the economy will have trouble either 'growing out' of the deficit or 'taxing out' of it in the future. Thanks for your comments!
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Comment by Marcotte Anderson on September 15, 2010 at 7:19pm
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The other thing to consider is the breakdown between personal and corporate income tax revenue (and rate), as well as social insurance tax revenues. This critique of the op-ed at Portfolio teases those apart, but sadly the graphs aren't showing up for me.
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Comment by John W. Skorburg on September 15, 2010 at 7:19pm
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Here's yet another explanation of Hauser's Law for 2010!
http://online.wsj.com/article/SB10001424052748704608104575217870728...
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Comment by John W. Skorburg on September 15, 2010 at 7:14pm
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Here's a link to the graph that H.C. Wainwright has been using......I usually use the fiscal data provided in the Economic Report of the President for revenues as a % of GDP. But your point is well taken, perhaps the best figure for the share of the pie for the federal government is only 18% and not as high as 20%! JWS
http://www.hoover.org/publications/hoover-digest/article/5728
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Comment by Marcotte Anderson on September 15, 2010 at 6:04pm
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Interesting.
I've been using http://www.usgovernmentrevenue.com/ for government revenue stats, and the graph I get for revenue as a percent of GDP shows a significant degree of variation around 18% or so.
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