IPcentral Weblog
  The DACA Blog

Tuesday, May 20, 2008

What's in a name?
(previous | next)

A key to American competitiveness and growth over the centuries has been our friendly treatment of capital and labor. Relative to the world, we've mostly imposed lower tax rates on income and investment and reaped the rewards in terms of the largest economy -- and the largest tax base and most tax receipts.

Moreover, as we substantially reduced tax rates over the last 50 years, federal tax revenue remained basically constant at around 18.5% of GDP. It's an unambiguous argument for low tax rates, and in an article last fall, I called this phenomenon Reynolds' Law after the economist who first noted it, Alan Reynolds.

But not so fast! Today, David Ranson pens a brief article with a great little chart, highlighting the same phenomenon, but says we should call it Hauser's Law after San Francisco economist Kurt Hauser who noted the relationship in 1993.


No matter. The concept is so simple it has probably been noted by others, too. But as the world becomes more competitive with flat taxes flourishing in the former Communist world and tax cuts fueling global growth, from China and Singapore to Dubai and Ireland, American politicians should look at this simple chart that shows they cannot raise more revenue with higher tax rates -- and then shelve their silly high-tax plans.

Reynolds or Hauser, the revenue relationship remains. A tax-cut by any other name would smell as sweet.

posted by Bret Swanson @ 11:07 AM | Taxes

Share |

Link to this Entry | Printer-Friendly


I used to write for Dave Ranson's shop and Kurt Hauser was my consulting client. The trouble with comparing individual tax rates with total taxes as a share of GDP is that (1) total taxes includes payroll and corporate tax, and (2) people don't pay personal taxes with GDP but with personal income.

So, I regard Reynolds Law as a big improvement over Hauser's, regardless who came first. I think I may have been inspired by critics of Hauser's first paper, but don't really recall.

Posted by: Alan Reynolds at May 21, 2008 4:21 PM

Alan Reynolds makes an important distinction -- between total federal revenues and personal income tax revenues. I also made this distinction in my article, "The Big Boom." Comparing individual tax rates and individual tax revenues, the relationship -- or more to the point, the non-relationship between tax rates and tax revenues -- still holds. Despite an effort by Zubin Jelveh at the Portfolio blog (http://www.portfolio.com/views/blogs/odd-numbers/2008/05/20/lying-with-charts-wsj-edition?rss=true) to refute this phenomenon by disaggregating the various federal tax components -- income, payroll, and corporate taxes -- he actually shows Reynolds' Law to work perfectly well.

Posted by: Bret Swanson at May 21, 2008 6:18 PM

This is total nonsense. Hauser's "Law" is ideological claptrap that is taught in no serious economic program.

Why? It restricts its analysis of taxation to the top income bracket, but it presents total government revenue. What happened in the period of 1950-2008 is that the top marginal rate generally went down, and the tax rates on everyone else generally went up. It is not surprising that overall revenues remained more-or-less flat, therefore. What happened was not some magical interference by the Invisible Hand, but a transfer of the tax burden from the very wealthy to the middle class. Not coincidentally, the middle class has been shrinking and real wages have been declining during the same period.

Hauser's Law joins the Laffer Curve in the dustbin of right-wing voodoo economic theory. The only people who promote either are the people who, one way or another, benefit by doing so. Like those paragons of objective, scientific analysis at the WSJ editorial page.

My favorite quote about the Laffer Curve came from my econ professor, who said "The Laffer Curve is relevant to policy in exactly the same way that the melting point of steel is relevant to washing the dishes."

Posted by: Mike mith at May 25, 2008 8:24 PM

Hauser is absolutely correct! The liberal response to it reminds me of the story about the goose that laid the golden eggs. The entirety of the liberal position on economics is as follows: Let's kill the goose and divide the eggs.

Posted by: Scott Bullen at May 30, 2008 5:53 PM

Post a Comment:

Blog Main
RSS Feed  
Recent Posts
  EFF-PFF Amicus Brief in Schwarzenegger v. EMA Supreme Court Videogame Violence Case
New OECD Study Finds That Improved IPR Protections Benefit Developing Countries
Hubris, Cowardice, File-sharing, and TechDirt
iPhones, DRM, and Doom-Mongers
"Rogue Archivist" Carl Malamud On How to Fix Gov2.0
Coping with Information Overload: Thoughts on Hamlet's BlackBerry by William Powers
How Many Times Has Michael "Dr. Doom" Copps Forecast an Internet Apocalypse?
Google / Verizon Proposal May Be Important Compromise, But Regulatory Trajectory Concerns Many
Two Schools of Internet Pessimism
GAO: Wireless Prices Plummeting; Public Knowledge: We Must Regulate!
Archives by Month
  September 2010
August 2010
July 2010
June 2010
  - (see all)
Archives by Topic
  - A La Carte
- Add category
- Advertising & Marketing
- Antitrust & Competition Policy
- Appleplectics
- Books & Book Reviews
- Broadband
- Cable
- Campaign Finance Law
- Capitalism
- Capitol Hill
- China
- Commons
- Communications
- Copyright
- Cutting the Video Cord
- Cyber-Security
- Digital Americas
- Digital Europe
- Digital Europe 2006
- Digital TV
- E-commerce
- e-Government & Transparency
- Economics
- Education
- Electricity
- Energy
- Events
- Exaflood
- Free Speech
- Gambling
- General
- Generic Rant
- Global Innovation
- Googlephobia
- Googlephobia
- Human Capital
- Innovation
- Intermediary Deputization & Section 230
- Internet
- Internet Governance
- Internet TV
- Interoperability
- IP
- Local Franchising
- Mass Media
- Media Regulation
- Monetary Policy
- Municipal Ownership
- Net Neutrality
- Neutrality
- Non-PFF Podcasts
- Ongoing Series
- Online Safety & Parental Controls
- Open Source
- PFF Podcasts
- Philosophy / Cyber-Libertarianism
- Privacy
- Privacy Solutions
- Regulation
- Search
- Security
- Software
- Space
- Spectrum
- Sports
- State Policy
- Supreme Court
- Taxes
- The FCC
- The FTC
- The News Frontier
- Think Tanks
- Trade
- Trademark
- Universal Service
- Video Games & Virtual Worlds
- VoIP
- What We're Reading
- Wireless
- Wireline
Archives by Author
PFF Blogosphere Archives
We welcome comments by email - look for a link to the author's email address in the byline of each post. Please let us know if we may publish your remarks.

The Progress & Freedom Foundation