Nov

30

Over the past six decades, tax revenues as a percentage of GDP have averaged just under 19% regardless of the top marginal personal income tax rate. The top marginal rate has been as high as 92% (1952-53) and as low as 28% (1988-90). This observation was first reported in an op-ed I wrote for this newspaper in March 1993. A wit later dubbed this "Hauser's Law." W. Kurt Hauser.

The IRS provides historical tax data, which (along with a source for real per-capita GDP) was used to construct the attached chart.

The blue line is the ratio (total income tax paid) / (total income), 1945-2005, which ranged from about 9% in 1949 to 16% in 1981 (total income includes salary and wages, dividends and interest, business net income, net capital gains, and all other income). The red line is real per-capita GDP adjusted to fit on the same chart ( /100,000).

Real per-capita GDP has risen in a nearly linear fashion in the post war period, while the fraction of total income taxes has remained basically flat (but variable). To the eyeball, the fluctuation in income taxation did not seem to effect GDP growth; which calls for some statistical testing:

Real per-capita GDP yearly change was calculated and regressed first against contemporaneous income tax / income:

Regression Analysis: PCGDP rate versus total (tax/income)

The regression equation is PCGDP rate = 0.0043 + 0.108 total (tax/income)

Predictor               Coef      SE Coef     T      P
Constant               0.0043   0.0370  0.12  0.909
total (tax/income)   0.1084   0.2761  0.39  0.696

S = 0.0301101   R-Sq = 0.3%   R-Sq(adj) = 0.0%

No significant relationship. But it is possible that last year's tax rate effected this years GDP growth, so here is the same regression lagged by one year (This year's real per-capita GDP yearly change regressed against prior year's income tax / income):

Regression Analysis: PCGDP rate L1 versus tax/inc lag1

The regression equation is
PCGDP rate L1 = 0.0735 - 0.410 tax/inc lag1

Predictor        Coef  SE Coef      T      P
Constant       0.0735  0.0363   2.02  0.048
tax/inc lag1  -0.4096   0.2705  -1.51  0.135

S = 0.0295713   R-Sq = 3.8%   R-Sq(adj) = 2.1%
 

Still not significant, but more of an effect than contemporaneous. And the negative slope coefficient suggests that higher taxes last year were associated with lower per-capita GDP growth this year.


Comments

Name

Email

Website

Speak your mind

1 Comment so far

  1. Terry Lesniak on November 30, 2010 12:17 pm

    What is it about Hauser’s Law that the political establishment has such a difficult time grasping? With lower rates creating a larger piece of the pie and 19% a constant, how is it we still carry on the same tired dialogue regarding tax cuts “for the rich”? Can the message ever get past the Robert Reichian blather that passes for supposed progressive economic wisdom?

Archives

Resources & Links

Search