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Hauser's Law & Soaking The Rich Fallacy
#1
So, just what is Hauser's Law anyway? And what does it have to do with the eternal desire to make the rich pay it's "Fair Share", or so the Left states? Well, here it is . And note the graph below. It it is anywhere near accurate, there is much to this theory.

Let me know what you think. And if this trend always holds pretty much true to form, isn't it a bit outdated to use the old 'Class Warfare' thing, and just concentrate on obtaining revenue?

Quote:Hauser's Law

Soak the rich? You can't. A vital observation, first noted by former Hoover board chairman W. Kurt Hauser, banished this bit of wishful thinking.

W. Kurt Hauser is a San Francisco investment economist who published fresh and eye-opening data about the federal tax system fifteen years ago. His findings imply that there are draconian constraints on the ability of higher taxes to generate fresh revenues. I think his discovery deserves to be called Hauser's law, because it is as central to the economics of taxation as Boyle's law is to the physics of gases. Yet economists and policy makers are barely aware of it.

Like science, economics advances as verifiable patterns are recognized and codified. But economics is in a far earlier stage of evolution than physics. Unfortunately, it is often poisoned by political wishful thinking, just as medieval science was poisoned by religious doctrine. Taxation is an important example.

The interactions among the myriad participants in a tax system are as impossible to unravel as are those of the molecules in a gas, and the effects of tax policies are speculative and highly contentious. Will raising tax rates on the rich increase revenues, as Barack Obama hopes, or hold back the economy, as John McCain fears? Or both?

Hauser uncovered the means to answer these questions definitively. In a Wall Street Journal article in 1993, he stated that "no matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5 percent of GDP." What a pity that his discovery has not been more widely disseminated.

The chart on this page, updating the evidence to 2007, confirms Hauser's law. The federal tax yield (revenues divided by GDP) has remained close to 19.5 percent, even as the top tax bracket was brought down from 91 percent to the present 35 percent. This should cut the Gordian knot of tax policy debate.

The data show that the tax yield has been independent of marginal tax rates during this period but that tax revenue is directly proportional to GDP. So if we want to increase tax revenue, we need to increase GDP.

What happens if we instead raise tax rates? Economists of all persuasions accept that a tax-rate increase would reduce GDP, in which case Hauser's law says it would also lower tax revenue. That is a highly inconvenient truth for redistributive tax policy, and it flies in the face of deeply felt beliefs about social justice. It would surely be unpopular today with those presidential candidates who plan to raise tax rates on the rich—if they knew about it.

An Inconvenient Tax Truth

[Image: tax_rates_graph_ranson.jpg]


Although Hauser's law sounds like a restatement of the Laffer curve (and Hauser did cite Arthur Laffer in his original article), it has independent validity. Because Laffer's curve is a theoretical insight, theoreticians find it easy to quibble with. Test cases, in which the economy responds to a tax change, lend themselves to many alternative explanations. Conventional economists, despite immense publicity, have yet to swallow the Laffer curve. When it is mentioned at all by critics, it is often as an object of scorn.

Because Hauser's horizontal straight line is a simple fact, it is ultimately far more compelling. It also presents a major opportunity. It seems likely that the tax system could maintain a 19.5 percent yield with a top bracket even lower than 35 percent.

What makes Hauser's law work? For supply-siders, there is no mystery. As Hauser said: "Raising taxes encourages taxpayers to shift, hide, and underreport income. . . . Higher taxes reduce the incentives to work, produce, invest and save, thereby dampening overall economic activity and job creation."

Putting it a different way, capital migrates away from regimes in which it is treated harshly and toward regimes in which it is free to be invested profitably and safely. In this regard, the capital controlled by our richest citizens is especially tax intolerant.

The economics of taxation will be moribund until economists accept and explain Hauser's law. They will have to face up to it, reconcile it with other facts, and incorporate it within the body of accepted knowledge. And if this requires overturning reigning doctrine, then so be it.

Presidential candidates, instead of disputing how much more tax to impose on whom, would be better advised to come up with plans for increasing GDP and ridding the tax system of its wearying complexity. That would be a formula for success.

David Ranson is head of research at H.C. Wainwright & Co. Economics Inc.

By David Ranson.

Here is Dr. Hauser's oritinal article, in the WSJ:There's No Escaping Hauser's Law

And here is a video, with him being interviewed

Let me say this personal observation, which has also been stated before, by people wiser than me. There are basically two ways a person can attempt to build up his/her stature, with relation to others. Firstly, he/she can go about this by attempting to drag the other down to one's level. Or Secondly, he/she can accomplish this by being complimentary of others, by emulating their successes.

It is clear that many within the Democrat Party are more intent on using the former strategy with relation to the more productive in society. And my guess is that Hauser, with his statistics, is demonstrating this very thing to everyone.

So why wast the effort, causing conflict, lower economic growth, and damage to the entire economic system? Is "GetEvenWithEmIsm" all that imperative?
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"Falsehood flies, and truth comes limping after it" - Jonathan Swift, 1710
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#2
When the CBO published the $700 Billion revenue loss that the Democrats ballyhoo, how did they ignore all the verifiable facts in Hauser?

I hope that someone will broach both Hauser and Laffer to the media. Maybe Ryan, Boehner, Paul, or Trumpp?
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#3
WmLambert Wrote:When the CBO published the $700 Billion revenue loss that the Democrats ballyhoo, how did they ignore all the verifiable facts in Hauser?

I hope that someone will broach both Hauser and Laffer to the media. Maybe Ryan, Boehner, Paul, or Trumpp?

Time will tell Bill.
___________________________________________________________________________________________________
"Falsehood flies, and truth comes limping after it" - Jonathan Swift, 1710
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#4
Looking at that graph I would say there is a great counter argument that could be made. So let me play devil's advocate.

From 1950 to 1965 America had a great middle class. We led the world's automotive industry and pretty much every other industry. Suburbia exploded, the middle class grew. Compared to today many would call it idyllic.

So while revenue may not have changed certainly something else did.

So we deregulated, lowed taxes on the rich and the revenue stayed the same; except we squeezed the middle class, lost our industrial and manufacturing jobs and for the next thirty five years our cars were of inferior design.
"And down through the centuries the robes have never failed to keep the public at a respectful distance, inspire a decent awe for the professions, and impart an air of solemnity and mystery that has been as good as money in the bank. The four faculties of theology, philosophy, medicine, and law have been the perennial seedbeds, not only of professional wisdom, but of the quackery and venality so generously exposed to public view by Plato, Rabelais, Molière, Swift, Gibbon, A. E. Housman, H. L. Mencken, and others. What took place in the Greco-Roman as in the Christian world was that fatal shift from leadership to management that marks the decline and fall of civilizations." - taken from a speech by Hugh Nibley
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#5
TheMan Wrote:Looking at that graph I would say there is a great counter argument that could be made. So let me play devil's advocate.

From 1950 to 1965 America had a great middle class. We led the world's automotive industry and pretty much every other industry. Suburbia exploded, the middle class grew. Compared to today many would call it idyllic.

So while revenue may not have changed certainly something else did.

So we deregulated, lowed taxes on the rich and the revenue stayed the same; except we squeezed the middle class, lost our industrial and manufacturing jobs and for the next thirty five years our cars were of inferior design.

Why do you automatically assume that "Middle Class" means union jobs? Where did this come from? Believe me, the number/percentage of Middle Class has continued to increase over the years. And if the percentage does go down, look at the 'so called' wealthy, and you will see that the middle class has generally been moving up a step.
___________________________________________________________________________________________________
"Falsehood flies, and truth comes limping after it" - Jonathan Swift, 1710
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#6
Yes, the greatest increase of the middle class was during Reagan, when the lowest quintile moved up to higher quintiles. There are always newly arrived first-time workers and the disadvantaged, but less than before.

The difference was in expectation. When B&W Lassie was on TV with Timmy slipping out of his screenless bedroom windows to get to his adventures, almost no one had screens. Phones were rare and not everyone had a TV. Nowadays, when third generation welfare families have 72" plasma screens and free gimmees, the comparison with the 50's just doesn't hold up.
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#7
Quote:Like science, economics advances as verifiable patterns are recognized and codified. But economics is in a far earlier stage of evolution than physics.

Economics is nothing like physics. Economists just wish it was so they can justify taking all those math classes. Wink1

I agree with the article, I just thought I'd take an opportunity to take a jab at economists.
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#8
Hold on. Some economics is scientifically demonstrable. Keynesian models are not - but I said Economics - not fantasy.
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#9
Brooklyn Wrote:
Quote:Like science, economics advances as verifiable patterns are recognized and codified. But economics is in a far earlier stage of evolution than physics.

Economics is nothing like physics. Economists just wish it was so they can justify taking all those math classes. Wink1

I agree with the article, I just thought I'd take an opportunity to take a jab at economists.

By all means: I do it all the time.

Especially that little ferret faced fellow at the NYTimes. You know, your local High Priest of the Church of Keynes. S6
___________________________________________________________________________________________________
"Falsehood flies, and truth comes limping after it" - Jonathan Swift, 1710
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#10
WmLambert Wrote:Hold on. Some economics is scientifically demonstrable. Keynesian models are not - but I said Economics - not fantasy.

What is missing from your statement is that economic relationships are demonstrable with some degree of error. Some error is quite small, yet some is quite large. We are talking about human behavior, not gravity. A lot of economists today attempt to quantify what they shouldn't, and reduce every relationship to a mathematical function of some kind. This isn't always the best idea. Behavior changes. People change.

I will say, that on the macro level, its a bit easier use these tools.

But, as I say this, I decided to run a regression of receipts to GDP, to verify the data in the OP. It turns out to be very accurate.

The equation is Rg = 0.1771GDP + int + e with a 0.988 R squared. Here I am bashing econometrics, then using it. Too funny S2
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#11
Brooklyn Wrote:
WmLambert Wrote:Hold on. Some economics is scientifically demonstrable. Keynesian models are not - but I said Economics - not fantasy.

What is missing from your statement is that economic relationships are demonstrable with some degree of error. We are talking about human behavior, not gravity. A lot of economists today attempt to quantify what they shouldn't, and reduce every relationship to a mathematical function of some kind. This isn't always the best idea.

I have to agree with you Brooklyn. Economics is a "Social Science" if I recall correctly.
___________________________________________________________________________________________________
"Falsehood flies, and truth comes limping after it" - Jonathan Swift, 1710
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#12
Asimov was dead on with Psychohistory. It is the size of the sample that generates accuracy in prediction. There is enough history in Ludwig Erhard's Germany after WWII, JFK's tax cuts, Reagan's tax cuts, and Bush 43 Tax cuts to make seviceable statements that ring true.
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#13
WmLambert Wrote:Asimov was dead on with Psychohistory. It is the size of the sample that generates accuracy in prediction. There is enough history in Ludwig Erhard's Germany after WWII, JFK's tax cuts, Reagan's tax cuts, and Bush 43 Tax cuts to make seviceable statements that ring true.

*see my edits*

On the macro level, some econometric tools are useful. My problem is not with using math together with theory and the other social sciences like psychology and sociology. It is with using math as a substitute for theory and the other social sciences.

Also, there is still some degree of error with any econometrics model. Basically, if making a prediction based on past data, I would predict that if X increases, it is likely that y will increase within a specified range.

I would never say that if X increases to this, then Y will increase to that.

I think I'm not being clear here. Its just important to remember that things that even seem very clear, like Hauser's analysis, and the regression I just ran, might not be so clear. Its sort of important to ask why and to find out what is really going on. All you have to do is look at the regression I just ran. No relationship is thatperfect.

While I agree with the overall premise of the article and Hauser's work (the stuff about the incentives), I would never agree with some policy maker taking this data, and draw assumptions from it. In other words, I like the ideas, but not the math. People will use the math behind this, which could be faulty, and run with it. That is what I don't like.

Does that make sense?
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#14
John L Wrote:
TheMan Wrote:Looking at that graph I would say there is a great counter argument that could be made. So let me play devil's advocate.

From 1950 to 1965 America had a great middle class. We led the world's automotive industry and pretty much every other industry. Suburbia exploded, the middle class grew. Compared to today many would call it idyllic.

So while revenue may not have changed certainly something else did.

So we deregulated, lowed taxes on the rich and the revenue stayed the same; except we squeezed the middle class, lost our industrial and manufacturing jobs and for the next thirty five years our cars were of inferior design.

Why do you automatically assume that "Middle Class" means union jobs? Where did this come from? Believe me, the number/percentage of Middle Class has continued to increase over the years. And if the percentage does go down, look at the 'so called' wealthy, and you will see that the middle class has generally been moving up a step.

I am not assuming anything. I am telling you what the counter argument from the left will be. Something changed dramatically socially/economically and most people I know who lived through then and now seem to feel the middle class is being squeezed now more than then. So while revenue did not change, something has and not for the better from their perspective.

Like Brooklyn said the math is sound but what conclusion can you draw other than taxing the rich does not generate more revenue? How should this affect policy is a totally different question. Is it a matter of generating more revenue or how you generate the revenue?
"And down through the centuries the robes have never failed to keep the public at a respectful distance, inspire a decent awe for the professions, and impart an air of solemnity and mystery that has been as good as money in the bank. The four faculties of theology, philosophy, medicine, and law have been the perennial seedbeds, not only of professional wisdom, but of the quackery and venality so generously exposed to public view by Plato, Rabelais, Molière, Swift, Gibbon, A. E. Housman, H. L. Mencken, and others. What took place in the Greco-Roman as in the Christian world was that fatal shift from leadership to management that marks the decline and fall of civilizations." - taken from a speech by Hugh Nibley
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#15
Quote:Like Brooklyn said the math is sound but what conclusion can you draw other than taxing the rich does not generate more revenue? How should this affect policy is a totally different question. Is it a matter of generating more revenue or how you generate the revenue?

Well, like I said in the last post, the math looks too good. If you read my last post, you will see that I'm actually questioning the math. I'm not sure if any statistician has detrended the time series, then plotted the changes in revenue vs changes in the marginal rates. Hauser's analysis seems to predict a near zero correlation between changes in marginal rates, and changes in government revenue. It would interesting to see if that holds up.

Anyway, this is the main question I have about Hauser's analysis. It also points to what I was trying to talk about earlier. People should just use caution when looking at data like this and try to think about what is really going on here. Just ask questions and think about it. That is all.
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#16
In my opinion, mathematical economics makes as much sense as the "rational [stock] market" theory. It might work fine in calm times, but human emotions upset the inputs to the equations, quite dramatically from time to time.

That is, they are good quasi static models, but useless as dynamic models since no one has modeled correctly human passions.
Jefferson: I place economy among the first and important virtues, and public debt as the greatest of dangers. To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our choice between economy and liberty, or profusion and servitude. If we can prevent the government from wasting the labors of the people under the pretense of caring for them, they will be happy.
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#17
As I mentioned... that comes with the size of the sample. Yes, numbers rooted in a half dozen examples are always suspect, but numbers based on millions and billions of observations ring true to the level that they can be trusted to be accurate.

There will always be odd exceptions (like the Mule in Hari Seldon's Foundation), but Asimov's point was not individual prediction - but prediction of the mass, and how it reacts.

The Free Market may well be predictable - but listening to Glenn Beck lately makes the Soros factor as big a deflection point as the Mule.
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#18
WmLambert Wrote:As I mentioned... that comes with the size of the sample. Yes, numbers rooted in a half dozen examples are always suspect, but numbers based on millions and billions of observations ring true to the level that they can be trusted to be accurate.

Not always. You can have millions of observations, but you can still have observation bias. You can also have tons of observations, and have omitted variable bias.

Look at the recent financial crisis. Wall St firms had huge sample sizes. Yet many of these firms, took this past data, used value at risk, which is a tool that measures how much of a portfolios value could be lost on a given day, and leveraged themselves to the eyeballs based on these models. The largest anomaly factored into these models was the 1987 crisis. These really smart guys made a huge mistake. They trusted their models. They thought the sample size was large enough. They almost killed our entire economy.

Also, look at Hauser's data above, you have government revenue data dating back to 1940, but this data hasn't been detrended. Basically, if you ran a regression on the data, and offset the timing by 1 period, there would be a great degree of autocorrelation. So much so, that it would be a better predictor of the next periods government revenue than GDP. This is a real problem. That graph up there looks nice, and it's good at confirming one's own biases. But it could be wrong. I wouldn't like actual policy to be made from data like this. There are real world consequences when politicians, who are only looking after their own interests, get their hands on stuff like this.

The point is this: Mathematical models makes economics look scientific - when it isn't. No matter what the sample size, there is ALWAYS a degree of error in normal times, and "odd exceptions", because a lot of faith is put in models in critical parts of our economy, can cause a lot external damage.

Please, let us not treat "economic laws" and scientific laws like gravity the same. They are nothing alike.
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#19
WmLambert Wrote:Nowadays, when third generation welfare families have 72" plasma screens and free gimmees, the comparison with the 50's just doesn't hold up.
you see? plasma is cheap crap for welfare reciepients. i'm looking for a new tv, and there seems to be no plasma with hd, 1920 x 1080. need an led or lcd or what they are called. way more expensive in the same size.

well, to the issue, i found a nice statement.

Quote:The 2005 CBO data show that changes in law enacted since January 2001 increased the deficit by $539 billion in 2005. In the absence of such legislation, the nation would have a surplus that year. In 2010, when all the Bush tax cuts were finally phased in, a staggering 52.5 percent of the benefits went to the richest 5 percent of taxpayers. President Bush and his supporters argued that these high-income tax cuts would benefit everybody because they would unleash investment that would spark widespread economic prosperity.

There is no evidence of this.

From 2000 to 2007, the United States lost one in five (3.5 million) middle-class jobs. A majority of the new jobs created in the United States under Bush pay extremely low wages at less than $18,000 a year, usually without benefits. This is with corporate profits at an all time high since 1960.
"You know, Paul, Reagan proved that deficits don't matter." Dick Cheney
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#20
Here is a classic case of a state failing to understand Houser's Law. And if you think it is a Jackass run state,.....YOU WIN!! Wink1

A Jackass is still a Jackass, is still a................

Here is the NCPA rundown:

Quote:Ducking Higher Taxes

Oregon raised its income tax on the richest 2 percent of its residents last year to fix its budget hole, but now the state treasury admits it collected nearly one-third less revenue than projected, according to the Wall Street Journal.

-In 2009 the state legislature raised the tax rate to 10.8 percent on joint-filer income of between $250,000 and $500,000, and to 11 percent on income above $500,000.
-Only New York City's rate is higher.
-Instead of $180 million collected last year from the new tax, the state received $130 million.

The Eugene Register-Guard newspaper reports that after the tax was raised "income tax and other revenue collections began plunging so steeply that any gains from the two measures seemed trivial."

-One reason revenues are so low is that about one-quarter of the rich tax filers seem to have gone missing.
-The state expected 38,000 Oregonians to pay the higher tax, but only 28,000 did.
-These numbers are in line with a Cascade Policy Institute study, based on interstate migration patterns, predicting that the tax surcharge would lead to 80,000 fewer wealthy tax filers in Oregon over the next decade.

The biggest loss of revenues came from capital gains receipts, says the Journal.

-The new 11 percent top tax rate applies to stock and asset sales.
-Instead of $3.5 billion of capital gains in 2009, there was only $2 billion to tax -- 43 percent less.

All of this is an instant replay of what happened in Maryland in 2008 when the legislature in Annapolis instituted a millionaire tax. There roughly one-third of the state's millionaire households vanished from the tax rolls after rates went up.

Source: "Ducking Higher Taxes," Wall Street Journal, December 21, 2010.
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"Falsehood flies, and truth comes limping after it" - Jonathan Swift, 1710
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