Hauser's law

Hauser's law is the empirical 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. This observation suggests that changes in tax rates do not significantly affect the overall tax revenue as a percentage of GDP. Hauser's Law is often compared to the Laffer curve, but while the Laffer curve is a theoretical argument, Hauser's Law is based on empirical data.

Hauser's Law remains a significant concept in discussions about tax policy and economic theory. It suggests that the relationship between tax rates and revenue is more complex than simple linear assumptions and highlights the importance of considering broader economic factors such as GDP growth. The fact is that from 1930 to 2010, tax-revenue collection in the United States has never topped 20.9 percent, averaging 16.5 percent of GDP over 80 years. This despite the drastic historical fluctuation in tax rates on the wealthiest Americans.

Hauser's Law was authored by William Kurt Hauser, a San Francisco-based investment analyst and economist. He first proposed the concept in 1993. His empirical observation was later dubbed "Hauser's Law" by David Ranson, a former Hoover Institution research fellow, who highlighted its significance in a 2008 editorial in the Wall Street Journal. David Ranson, in his editorial, further popularized the concept and argued that Hauser's Law should be integrated into mainstream economic thought.

Standford University professor Kurt Hauser stated: "Higher taxes discourage the “animal spirits” of entrepreneurship. When tax rates are raised, taxpayers are encouraged to shift, hide and underreport income. Taxpayers divert their effort from pro-growth productive investments to seeking tax shelters, tax havens and tax exempt investments. This behavior tends to dampen economic growth and job creation. Lower taxes increase the incentives to work, produce, save and invest, thereby encouraging capital formation and jobs. Taxpayers have less incentive to shelter and shift income."