You Can't Soak the Rich

Portfolio's Zubin Jelveh identified two major problems with Hauser's figures: (1) They don't include corporate tax revenue, which has dropped dramatically. (2) They DO include revenue from social security and other social-insurance programs, which aren't tied to tax rates and which have grown dramatically.<p>In other words, the appearance that tax revenue remains flat across the past 57 years of fluctuating top tax rates is a coincidence, to put it nicely, or an accounting fraud, to be a bit more accurate about it.<p>More details, including corrected charts, are here: <a href="http://www.portfolio.com/views/blogs/odd-numbers/2008/05/20/lying-with-charts-wsj-edition" rel="nofollow">http://www.portfolio.com/views/blogs/odd-numbers/2008/05/20/...</a>

The argument seems politically motivated. Lower taxes for the consumer tax brackets would be another valid way of increasing GDP (through an increase in consumer spending).<p>And the graph is meaningless at best. We'd expect to find a correlation b/w the average tax rate across the board and tax revenue as a percentage of GDP. Plotting just the top tax bracket in an effort to show no correlation is intentionally misleading.

This was posted here months ago, and shown to be grossly inadequate then. It's entirely meaningless because you could plot anything on that graph and draw an identical conclusion. Surely there must be something that does fluctuate and effect the tax revenue as a percentage of GDP, but if you plotted it on a graph it would appear not to.<p>Moreover, top marginal tax rate is an all but irrelevant metric since the ultra-wealthy pay considerably lower due to capital gains.

On the other side of the macroeconomic coin, despite the standard political back-and-forth [1], government spending has also remained basically constant at 21% of GDP for the last few decades.<p>But now that may be changing:<p><a href="http://www.marginalrevolution.com/marginalrevolution/2009/02/is-21-percent-gone.html" rel="nofollow">http://www.marginalrevolution.com/marginalrevolution/2009/02...</a><p>[1] Thinking of the Democrats and Republicans as countervaling processes maintaining a homeostatic equilibrium that expresses the electorate's preference for a government that spends 20% of GDP is a good way to rehabilitate yourself if you've picked up the vice of excessive political involvement.

When searching around for Hauser's Law, I found this comment that directly addresses some of the issues in the WSJ article:<p><i>The problem I have with Hauser’s Law is that it doesn’t seem to include state and local taxes, which should raise the bar by quite a lot. Also, why should we look to the nation as a whole? To find out if there’s an upper limit, I think we should look at what state has the highest rate. For that matter, perhaps we should look at foreign countries.<p>While tax revenues may been fairly stable over the past 50 years, that doesn’t mean we couldn’t generate more if we wanted to.<p>Posted by edelfenbein at May 21, 2008 10:22 AM</i>

As they say, there are lies, damn lies, and statistics. The article graphs the maximum tax bracket with the total tax revenue, with no account for the number of people in this bracket or the contribution of all other brackets in the system. Its understandable, since doing the right thing would require a lot of data and would look a bit like calculus (revenue being the area under the product of two curves), and would sadly be too difficult for many readers.<p>But we don't have that data, so let me hypothesize a situation where this analysis isn't the whole truth. Article states that we take the same revenue whether the rich are taxed at 90% or 30%. Lets say that the left of the graph has 1 person making $1,000,000 in the 90% bracket, and 1000 other people making $50,000 in a 25% bracket. Total tax revenue is $13.4M.<p>Now at the right of the graph, we have a dip where the top bracket is at 35%, so in the same situation, our revenue should have dropped to $12.8M but was instead stable! Money on trees! Except there is a simple alternative explanation, which is that the bottom tax bracket went from 25% to 26%. Unfortunately, data on this is not supplied by the article.<p>It should be easy to see that raising taxes will raise tax revenue (not accounting for accounting tricks employed generally by the rich). Plotting a small component against an unqualified whole data set is plain poor research, and the WSJ should be ashamed.

A different perspective:<p><a href="http://www.fivethirtyeight.com/2009/03/missing-1000000-tax-bracket.html" rel="nofollow">http://www.fivethirtyeight.com/2009/03/missing-1000000-tax-b...</a>

Doesn't this call into question the premise of a Laffer curve? <a href="http://en.wikipedia.org/wiki/Laffer_curve" rel="nofollow">http://en.wikipedia.org/wiki/Laffer_curve</a><p>And if increasing taxation lowers GDP doesn't it follow that lowering taxation should increase GDP?

I've got views on taxation that would get me crucified on reddit, but may have a more sympathetic ear on HN. Here's some examples:<p>1) Eliminating corporate taxes. Would increase employment, capital spending, and wouldn't leave too much of a dent in tax receipts.<p>2) Eliminating automatic payroll tax deductions. Have citizens actually write out a check every quarter. Very inefficient, but we'd start to see some major reforms in SS/Medicare as federal legislature starts to get calls from their constituents.<p>3) Cutting payroll taxes and offset revenue with energy taxes (gasoline and carbon).

I agree with the article's conclusion, but not necessarily its premise. Not sure "Hauser's Law" stands up, or is it just statistical coincidence?<p>But yes, raising tax rates can certainly decrease tax yields. Take one of my closest friends. He's 28 now. He's a college dropout, and self-made millionaire as of age 24. Amazing guy. He was grossing about $800,000/year in his age 24/25/26 years. He was netting out mid/low six figures, and paying $50,000-$150,000 each year in various taxes. Working (no kidding) 80+ hour weeks. Often more.<p>I've seen people cite the top marginal tax rate as being in the 90% range post WWII. But mobility has increased so much since then. My friend is an incredibly resourceful dude, as you can imagine. He's a good person. America wants him here, or at least should. But if the government now wanted, after writeoffs, interest deduction from taxes, etc, say... $400,000 per year from him - he'd be long gone. There's enough countries where you can get a "welcomed exceptional people" visa by putting enough money in the bank, or a resident's visa by buying a property. Dubai being one such place.<p>So yeah, he'd be long gone if the government wanted to tax him more. Now, I can't speak to whether that's fair, or right, or if he's neglecting his patriotic duty by not being willing to stick around in the USA even if it wasn't a smart move for him financially. But it's the way it is. He grits his teeth and pays what he has to because he reckons he'll make more money here doing it that way. If that were to change, I reckon I'd be visiting him in Hong Kong, Dubai, or wherever else pretty fast. He and I both travel pretty regularly, and both of us have lived abroad some. Heck, I'd probably leave if taxes got high enough too.

I'm not surely whether the full story is being told in this article.<p>The 90% tax may well act like a brake on wealth generation, but was only applied at the very highest incomes, not people on mid 6 figures. I bet the elimination of the top rate actually resulted in a large shift of taxation from the rich, to the middle-class, like you and me.

I've never heard of this idea... I'm scanning econ blogs for the rest of the day to see if anyone comments on it.

Did you know that more than 40% of the country DOES NOT pay taxes?<p>Someone should be taxing that 40%...

Obama says he'll set policy according to the science... Let's see, shall we?

The 80/20 rule strikes again