Hauser’s law states that US federal revenue as a percentage of GDP has been around 19% since World War II, regardless of changes in the top marginal personal income tax rate. This is because high taxes discourage economic activity. The law matches economic data and is related to the Laffer curve. Critics argue that swings in tax revenues are too dramatic to turn into a usable average.
Hauser’s law is a theory that US federal revenue as a percentage of gross domestic product (GDP) has been about 19% since World War II, regardless of changes in the top marginal personal income tax rate . Kurt Hauser, the proponent of Hauser’s law, argued that this is because high taxes discourage saving, working and investing, which leads to less economic activity. While not a proven law, Hauser’s law appears to match the economic data. Revenue as a percentage of GDP fluctuates, but averages around 19%.
More facts about Hauser’s law:
The top marginal income tax rate changed dramatically from 1950 to 2010. The highest rates were in the early 1950s, just over 90%. The lowest rates were in the late 1980s and early 1990s, at around 28%.
Hauser’s law is related to another economic theory called the Laffer curve, which represents the relationship between tax revenue and all possible tax rates. The Laffer curve basically shows that there is a sweet spot of taxation, and at that point, the government can collect the most taxes. Anything above or below that, and the government won’t be able to collect most taxes, because people will either keep the money if they’re undertaxed. If they are overworked, they will be less inclined to work or hide income.
There are critics of both Hauser’s law and the Laffer curve. Some economists argue that swings in tax revenues are too dramatic to turn into a usable average, and others argue that Hauser’s law only works in nations that have a federalist tax system and would not work in a nation that has value-added taxes. .
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