Hauser's law

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In economics, Hauser's Law is the observation that, in the United States, federal tax revenues since World War II have always been approximately equal to 19.5% of GDP, regardless of wide fluctuations in the marginal tax rate.^[1]

From fiscal year 1946 to fiscal year 2007, federal tax receipts as a percentage of gross domestic product averaged 17.9%, with a range of 14.4% to 20.9%.^[2]

The proposition was first put forward in 1993 by William Kurt Hauser, a San Francisco investment economist, who wrote, "No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP."^[3]

Hauser cited Arthur Laffer's concept of the Laffer curve in his original article. While the two concepts are similar, Hauser's Law was put forward as an empirical observation whereas the Laffer curve was thought of theoretically.^[4]

In a May 20, 2008 editorial by David Ranson, the Wall St. Journal published a graph showing that even though the top marginal tax rate of federal income tax had varied between a low of 28% to a high of 91%, between 1950 and 2007, federal tax revenues had indeed constantly remained at about 19.5% of GDP.^[5] The editorial went on to say, "The economics of taxation will be moribund until economists accept and explain Hauser's Law. For progress to be made, they will have to face up to it, reconcile it with other facts, and incorporate it within the body of accepted knowledge."^[4]

However, 2009 tax collections, at 15% of GDP, were the lowest level of the past 50 years and 4.5 percentage points lower than Hauser's Law suggests.^[6] The Heritage Foundation has stated that the recent world economic recession pushed receipts to a level significantly below the historical average.^[7]

Zubin Jelveh, writing for Portfolio.com, criticized the Wall Street Journal editorial for failing to adequately separate tax revenues from individuals from other types of tax revenues, such as corporate tax revenues and revenues from social insurance programs like Social Security. Jelveh argued that when these are separated, the percentage of GDP from tax revenues on individuals has been relatively stable but has increased somewhat, the percentage from corporate tax revenues has declined dramatically, and the percentage from tax revenues of social insurance programs has increased significantly. Jelveh's critique is not aimed at Hauser's Law itself, but at editorialist David Ranson's assertion that the Law supports supply-side assertions that selectively raising taxes on the rich will be counter-productive.^[8]

Forbes.com columnist Daniel J. Mitchell has argued that Hauser's Law has proven true due to the fact that the U.S. does not have a national sales tax and instead collects taxes in a federalist system, in contrast to many other Western nations. He also stated that the U.S. has an inherently more progressive system as well. Thus, he concluded that the Law represents a socio-political policy trend rather than a true economic law and that the trend could change rapidly if value-added taxes are imposed at the federal level.^[9]

Journalist Jonathan Chait has written in The New Republic that "swings are fairly dramatic" through U.S. history for tax receipts as a percent of GDP. He stated that the George H. W. Bush and Bill Clinton administrations received "massive" extra revenues as the result of tax increases while the George W. Bush administration tax cuts lead to a "massive" drop in revenues. He labeled the idea of static, flat revenues as a "scam".^[10]

• List of countries by tax revenue as percentage of GDP
• List of eponymous laws

• List of countries by tax revenue as percentage of GDP
• List of eponymous laws