Tax Rates Have No Effect on Government Tax Revenue

[Racehorse]

The full article is here: http://online.wsj.com/article/SB121124460502305693.html

"No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP."

The basic premise is that tax rates don't affect what the government actually pulls in, it's overall GDP that affects tax revenue. Since the percentage of GDP generated in tax revenue is relatively constant, the only way to grow tax revenue is to increase GDP.

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

Economists of all persuasions accept that a tax rate hike will reduce GDP, in which case Hauser's Law says it will also lower tax revenue. That's 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.

"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."

No big revelations, but it is an interesting article. Too bad the people who implement our economic policies don't actually have to understand economics.

[Headless Thompson Gunner]

Taxes aren't about revenue, they're about control.

[Brad Johnson]

the only way to grow tax revenue is to increase GDP.

And the first, fastest, and most historically proven way to increase GDP is to lower taxes and reduce government restrictions and controls.

Brad

[Scout26]

the only way to grow tax revenue is to increase GDP.

And the first, fastest, and most historically proven way to increase GDP is to lower taxes and reduce government restrictions and controls.

Brad

Not to hear Paddy tell of it, they don't.....

[Werewolf]

Not new: I learned that 19% number in 1970 in Econ 101 at Texas A&M University. Been studied for a long time. The number actually drifts between 18% and 21% of GDP. Increasing tax rates will cause a short term bump up but as the impact of increased taxes creates a longer term decrease in real GDP the number will drift down to the 19% level. The opposite is true for lower tax rates - a short term decrease with an eventual increase up to as the stimulated economy grows 19%. 

I've never read that anyone has figured why the magic number hovers around 19% but near as the guys who've studied this can tell that number pretty much holds true all thru out human history.

[Dntsycnt]

The number is 19 because 19 is the number of our ka-tet.

Ka is a wheel, say thankya.

Interesting stuff.

[The Annoyed Man]

The article in question was excellent. I'm planning on blogging it tomorrow.

[The Annoyed Man]

And the first, fastest, and most historically proven way to increase GDP is to lower taxes and reduce government restrictions and controls.

The only problem with that 'solution' is that any resulting growth is disproportionately distributed.

[De Selby]

By this reasoning, the more people that experience lower taxes, the more the economy will grow, since there will be fewer individuals hiding income, gaming to avoid work, etc etc.

So why wouldn't it be a good idea to significantly increase taxes on, say, the richest 10,000 people, in order to reduce taxes moderately for a million people?

Numbers not exact, but you see the point....why wouldn't it benefit the economy to tax the prada out of the richest few percentage points in the economy, while reducing taxes as far as possible on the rest of the population, thus hitting larger numbers of people with tax breaks?

[Standing Wolf]

The only problem with that 'solution' is that any resulting growth is disproportionately distributed.

Yeah. Right. We should never let people who invest money see the reward of their risk and labor: it just wouldn't be fair to those who'd rather not work.

[RocketMan]

By this reasoning, the more people that experience lower taxes, the more the economy will grow, since there will be fewer individuals hiding income, gaming to avoid work, etc etc.

So why wouldn't it be a good idea to significantly increase taxes on, say, the richest 10,000 people, in order to reduce taxes moderately for a million people?

Numbers not exact, but you see the point....why wouldn't it benefit the economy to tax the prada out of the richest few percentage points in the economy, while reducing taxes as far as possible on the rest of the population, thus hitting larger numbers of people with tax breaks?

You just had to know this was coming.  

[Standing Wolf]

You just had to know this was coming.

Yep. It's okay to steal from those who have money.

Atlas Shrugged.

[Archie]

And the first, fastest, and most historically proven way to increase GDP is to lower taxes and reduce government restrictions and controls.

The only problem with that 'solution' is that any resulting growth is disproportionately distributed.

Paddy, where is it carved in stone that 'growth should be proportionately distributed'? 

I'm not disagreeing with your statement, but from whence comes the presumption?

[The Annoyed Man]

By this reasoning, the more people that experience lower taxes, the more the economy will grow, since there will be fewer individuals hiding income, gaming to avoid work, etc etc.

So why wouldn't it be a good idea to significantly increase taxes on, say, the richest 10,000 people, in order to reduce taxes moderately for a million people?

Numbers not exact, but you see the point....why wouldn't it benefit the economy to tax the prada out of the richest few percentage points in the economy, while reducing taxes as far as possible on the rest of the population, thus hitting larger numbers of people with tax breaks?

Probably because rich people create more economy than poor people. When you try to steal what the rich people create, they tend to get pissed off. Make the theft disproportionate and they get really pissed off. Pissed off rich people will kick you in the nuts. Leastwise that is what I hear.

[Headless Thompson Gunner]

And the first, fastest, and most historically proven way to increase GDP is to lower taxes and reduce government restrictions and controls.

The only problem with that 'solution' is that any resulting growth is disproportionately distributed.

Paddy, where is it carved in stone that 'growth should be proportionately distributed'? 

But the growth in our system is proportionately distributed.  It is distributed to each of us in proportion to how much we earn and produce.

Paddy longs for a system in which things are disproportionately distributed.  He wants people who earn a lot to receive a smaller proportion than they deserve, and those who don't produce much at all to receive a larger portion than they deserve.

[The Annoyed Man]

Paddy, where is it carved in stone that 'growth should be proportionately distributed'?

I'm not disagreeing with your statement, but from whence comes the presumption?

Growth should be proportionately distributed among those who created the value.  Why should mere ownership of the means of production take the majority of the proceeds?   What about those who created/added value through their labor? 

[The Annoyed Man]

Paddy longs for a system in which things are disproportionately distributed.  He wants people who earn a lot to receive a smaller proportion than they deserve, and those who don't produce much at all to receive a larger portion than they deserve.
 

And therein lies the problem.  What people 'deserve' is currently determined via economic coercion.  You call it the 'free market'.  But there is no 'free market'.  It is a figment of your imagination.

[nico]

Paddy, where is it carved in stone that 'growth should be proportionately distributed'?

I'm not disagreeing with your statement, but from whence comes the presumption?

Growth should be proportionately distributed among those who created the value.  Why should mere ownership of the means of production take the majority of the proceeds?   What about those who created/added value through their labor? 

if they don't like it, they should go work somewhere else or get a contract that makes their pay change in proportion to the income of the business.  The people with "ownership of the means of production" are the ones who are taking the risk in the venture.  If a business goes bankrupt, the laborers are out a job; the owners of that business are out their job as well as the tens/hundreds of thousands/millions of dollars they've invested in the business.  The rewards aren't (and shouldn't be) the same because the risks aren't the same.   

People who want the same rewards as the owners of the means of production should be willing to accept the risks that go along with it.  Everybody wants the income of the owner of the multi-million dollar business, but nobody wants the responsibility/risks of being the owner of a multi-million dollar business. . .

[Perd Hapley]

mere ownership of the means of production

Yeah, because investing in the "means of production," taking all the risk, and running the show means nothing.     How can you be an accountant, yet be so dense about this stuff? 

[Standing Wolf]

Why should mere ownership of the means of production take the majority of the proceeds?   What about those who created/added value through their labor?

Those who want the big rewards have to take the big risks. The so-called "means of production" include the bright ideas, the inventions, the long shots that pan out as well as those that don't, et cetera. The high end labor is rewarded proportionately, or else it moves on to organizations where its value is recognized. The low end labor generally adds very little value, and so isn't highly rewarded.

Competent vice presidents of finance aren't a dime a dozen; fork lift drivers are another matter.

[grampster]

Paddy and the rest of the socialists of the world forget the one most important thing with respect to the creation of wealth:  RISK. 

Less risk, less wealth.  More risk, more wealth.  Those who are unwilling to take risks always envy those who do.  There's the rub.

[De Selby]

Yeah, what's the risk? That you'll lose all the millions and have to work for an hourly wage like everyone else?

I don't think his point is so ridiculous. 

[Headless Thompson Gunner]

That's easy for you to say, you don't have any millions to lose.

[Regolith]

Yeah, what's the risk? That you'll lose all the millions and have to work for an hourly wage like everyone else?

I don't think his point is so ridiculous. 

Well, when you invest money in order to start up a business, that money has to come from somewhere.  It either comes from loans -- in which case if your investment doesn't pay off you're in the hole for a LOT of money, which working an hourly wage won't pay off -- or it comes from your personal savings or assets, which unless you hit the lottery, means you've lost years and years of hard work, as well as possibly your nest egg, if you invested a significant portion of your savings or assets.

Those are some pretty big risks.

[De Selby]

That's easy for you to say, you don't have any millions to lose.

Well, sort of.