7 ms·

You Can't Soak the Rich

58 points by divia 18y ago

lionhearted 18y ago
I agree with the article's conclusion, but not necessarily its premise. Not sure "Hauser's Law" stands up, or is it just statistical coincidence? But yes, raising tax rates can certainly decrease tax yields. Take one of my closest friends. He's 28 now. He's a college dropout, and self-made millionaire as of age 24. Amazing guy. He was grossing about $800,000/year in his age 24/25/26 years. He was netting out mid/low six figures, and paying $50,000-$150,000 each year in various taxes. Working (no kidding) 80+ hour weeks. Often more. I've seen people cite the top marginal tax rate as being in the 90% range post WWII. But mobility has increased so much since then. My friend is an incredibly resourceful dude, as you can imagine. He's a good person. America wants him here, or at least should. But if the government now wanted, after writeoffs, interest deduction from taxes, etc, say... $400,000 per year from him - he'd be long gone. There's enough countries where you can get a "welcomed exceptional people" visa by putting enough money in the bank, or a resident's visa by buying a property. Dubai being one such place. So yeah, he'd be long gone if the government wanted to tax him more. Now, I can't speak to whether that's fair, or right, or if he's neglecting his patriotic duty by not being willing to stick around in the USA even if it wasn't a smart move for him financially. But it's the way it is. He grits his teeth and pays what he has to because he reckons he'll make more money here doing it that way. If that were to change, I reckon I'd be visiting him in Hong Kong, Dubai, or wherever else pretty fast. He and I both travel pretty regularly, and both of us have lived abroad some. Heck, I'd probably leave if taxes got high enough too.
- nazgulnarsil 18y ago
  I think this is becoming more and more true as globalization reduces the sedentary habits of business. when you're selling things over the internet, what incentive do you have to stay in a highly taxed region?
  - jbjohns 18y ago
    Personally I would like to see things get to a point that people switch countries as often as they switch jobs. Anything that would force countries to compete with benefits vs. costs. Many people talk about market forces driving inefficiencies out of the market place. I don't think the Government should be so shielded from this. I would like to see the government be the best it can possibly be and no government is anywhere near that atm IMO.
    - ibsulon 18y ago
      ...and learning a new language every few years isn't an inefficiency?
      - jbjohns 18y ago
        I'm living in a country now that has four national languages. None of which are English, yet I know several people who've lived here for years and can't speak a word of any of those languages. English is international these days and will get you much much further then you might think.
        theoneill 18y ago
        Switzerland? Or is there another?
        jbjohns 18y ago
        I live in Switzerland, yes, but I have Scottish college who worked previously in Germany and several friends from South Africa who've worked all over Europe. None of them can get much past "ja" or "nein". The thing to remember is that, outside of the U.S., most companies of any size are international. And once they're international the main language is probably going to be English because that will be the most accessible middle ground.
- numair 18y ago
  As an American citizen, you are taxed globally. Now, you may think that you can simply renounce your US citizenship, burn your passport and call it a day, but as of 1986 the IRS is able to come after you for taxes for up to 10 years after renunciation of citizenship. In addition, tax information is now shared with INS, so you can be barred entry from the US or end up getting carted off to somewhere you don't want to go if you don't have all of your ducks in a row. Perhaps you're thinking of starting an offshore company, and keeping your money there. Well, you've got to file a special form each year with the IRS for each entity of this sort, as they are known as "Controlled Foreign Corporations." Failure to provide the IRS with this information once again causes you to run afoul of US laws, which once again puts you at risk of punishment from the country that is globally known as "the world's policeman." You have to remember that you are a citizen of the world's smartest country. They have pretty much thought of everything.
  - lionhearted 18y ago
    Ah, I expected someone to make this comment eventually. It's true that the United States' tax code is the only one in the world that sets tax on its citizens living in foreign countries, transacting business in foreign countries, with foreign citizens, foreign suppliers, doing business with no connection to the United States. Brits in particular have a good laugh at our international tax code. They simply don't believe it when I try explaining it to them. Anyway, as someone that knows quite a few expats and international businesspeople - practically speaking, it doesn't always go down like you say.
    - numair 18y ago
      There is a standard expat deduction -- I want to say it's something like $72,000 per year. If you make less than that, you don't have to pay anything. "Quite a few expats and international businesspeople" who make more money, and hide it, are constantly getting in trouble -- see, for example, the recent move with the US against UBS. It's becoming harder with every passing day to flout the rules, so it's really a lot better for people to design their lives with the rules in mind. And we're not the only country - there's always Bangladesh!
- mattobrien 18y ago
  Small point: Dubai is finished. It is bankrupt. It was a classic boomtown. All of the building was done on debt. Foreigners are leaving their cars at the airport, flying out, so that they do not end up in debtor's prison (yes, Dubai has debtor's prison). Not exactly friendly to entrepreneurs - take a risk, take on some debt, and land in jail. Every major country is going to have to spend to stop from falling into complete depression. Taxes will be higher everywhere. And the US will likely get through this crisis better than anywhere else. Having the reserve currency has its benefits after all. I really do not think going somewhere else to avoid higher taxes will make sense in the future.
  - didroe 18y ago
    You've just got to pray that everyone keeps using Dollars to buy/sell oil and doesn't switch to the Euro.
    - mattobrien 18y ago
      The euro??? The euro has a much, much better chance of ceasing to exist than it does of replacing the dollar as the reserve currency. Countries like Spain and Italy that are near depression will have huge incentives to leave the euro so they can conduct their own monetary policy. If Eastern Europe is not bailed out before it goes bust, then more Western European banks will go bankrupt - and many countries in Europe are too small to bail out their banks. There will be immense pressure on the eurozone countries to leave the monetary union. In the land of the blind, the one-eyed man is king. The dollar does not look good, but compared to the euro or the yen, it looks great. We don't have to worry about losing reserve currency status anytime soon. We just need to figure out what to do with insolvent banks.
      - llimllib 18y ago
        I agree with you, and wanted to add this Marginal Revolution post which is tangentially related. Are the banks insolvent or illiquid? http://www.marginalrevolution.com/marginalrevolution/2009/03/john-hemptons-radical-view-of-banking.html http://www.marginalrevolution.com/marginalrevolution/2009/03...
gaius 18y ago
Obama says he'll set policy according to the science... Let's see, shall we?
- steveplace 18y ago
  I don't know if you've ever heard economists argue over what they call data, but it's a headache. It's hard to call this "science" as we can never really get a control group going as that's politically feasible.
- anamax 18y ago
  During the campaign, Obama said that he'd raise certain rates even if he knew that the result was less tax revenue.
  - gaius 18y ago
    Really? That seems to be a lose-lose proposition to me.
    - anamax 18y ago
      Why do you believe that revenue is Obama's only goal?
      - gaius 18y ago
        Something to do with the squillion-dollar deficit.
        anamax 18y ago
        Obama is a politician. Revenue is one of many tools, not a goal. To be fair, the amount of revenue "lost" by these increases is dwarfed by the "stimulus".
karl11 18y ago
I've never heard of this idea... I'm scanning econ blogs for the rest of the day to see if anyone comments on it.
- davidw 18y ago
  http://en.wikipedia.org/wiki/Hauser%27s_Law http://en.wikipedia.org/wiki/Hauser%27s_Law Has some more information. You won't find much commentary today, because the article is nearly a year old. In any case, this is basically just politics, so I flagged it.
  - DanielBMarkham 18y ago
    I disagree. I think there is a lesson in pricing strategies here. The trade of money for goods or services always follows a curve. Whether that is money for governmental services or money for startup services. It's an extremely important concept for strategic market positioning. The argument of how it applies to government may be political, but the economics are assuredly not.
    - davidw 18y ago
      Governments are a corner case though. You don't get to decide, in most cases, what services you want and how much money you're going to spend for them. In many cases, the services provided are for public goods, which have wonky economics and pricing (or lack thereof) of their own. So it's fairly irrelevant to the sorts of products and things most of us work on. If you really want articles about strategic pricing, there is a lot of far more directly relevant material out there... trying to tie this into startups feels like "6 degrees of hacker news".
      - DanielBMarkham 18y ago
        You don't have to go through all these contortions. Increasing price always eventually results in less revenue. Your ability to choose has nothing to do with it. The curve holds even in forced markets. That's the point I was making. You're asking for an exact match or nothing, which I think is a little bit on the extreme reasoning side. We don't need six degrees of hacker news, but we can't abandon power curves because it might be uncomfortable to talk about them either. In fact, even the exceptions are interesting here. It turns out you can soak the rich, at least in narrow markets with the right positioning. What you can't do is force a generic product into a high-end market and expect similar returns. This is all good stuff. Take out the politics and you've got a great discussion about how product positioning affects gross revenue. The item in question is simply a fixed product in a forced market. But heck, we're in that situation now with many monopolies, so it's not like government owns this particular discussion -- it's a generic discussion with government simply as one example.
nazgulnarsil 18y ago
Doesn't this call into question the premise of a Laffer curve? http://en.wikipedia.org/wiki/Laffer_curve http://en.wikipedia.org/wiki/Laffer_curve And if increasing taxation lowers GDP doesn't it follow that lowering taxation should increase GDP?
- gaius 18y ago
  Reagan implemented that policy, but then got bogged down in bankrupting the USSR.
ericwaller 18y ago
The argument seems politically motivated. Lower taxes for the consumer tax brackets would be another valid way of increasing GDP (through an increase in consumer spending). And the graph is meaningless at best. We'd expect to find a correlation b/w the average tax rate across the board and tax revenue as a percentage of GDP. Plotting just the top tax bracket in an effort to show no correlation is intentionally misleading.
- zupatol 18y ago
  And even if he had discovered a valid correlation for this period in this country, there is no reason for calling it a 'law'. There is no indication that the correlation will hold up in the future or in the rest of the world.
TobascoKid 18y ago
The 80/20 rule strikes again
watmough 18y ago
I'm not surely whether the full story is being told in this article. The 90% tax may well act like a brake on wealth generation, but was only applied at the very highest incomes, not people on mid 6 figures. I bet the elimination of the top rate actually resulted in a large shift of taxation from the rich, to the middle-class, like you and me.
- anamax 18y ago
  > I bet the elimination of the top rate actually resulted in a large shift of taxation from the rich, to the middle-class, like you and me. You lose. The fraction of taxes paid by the upper 1% and 5% have gone up. (Yes, under Bush too.) This isn't just a Federal phenomena - it happens at the state level too. A huge fraction of CA's income tax comes from a very small number of people. Their income is volatile.
jyu 18y ago
When searching around for Hauser's Law, I found this comment that directly addresses some of the issues in the WSJ article: The problem I have with Hauser’s Law is that it doesn’t seem to include state and local taxes, which should raise the bar by quite a lot. Also, why should we look to the nation as a whole? To find out if there’s an upper limit, I think we should look at what state has the highest rate. For that matter, perhaps we should look at foreign countries. While tax revenues may been fairly stable over the past 50 years, that doesn’t mean we couldn’t generate more if we wanted to. Posted by edelfenbein at May 21, 2008 10:22 AM
mnemonicsloth 18y ago
On the other side of the macroeconomic coin, despite the standard political back-and-forth [1], government spending has also remained basically constant at 21% of GDP for the last few decades. But now that may be changing: http://www.marginalrevolution.com/marginalrevolution/2009/02/is-21-percent-gone.html http://www.marginalrevolution.com/marginalrevolution/2009/02... [1] Thinking of the Democrats and Republicans as countervaling processes maintaining a homeostatic equilibrium that expresses the electorate's preference for a government that spends 20% of GDP is a good way to rehabilitate yourself if you've picked up the vice of excessive political involvement.
gabrielroth 18y ago
Portfolio's Zubin Jelveh identified two major problems with Hauser's figures: (1) They don't include corporate tax revenue, which has dropped dramatically. (2) They DO include revenue from social security and other social-insurance programs, which aren't tied to tax rates and which have grown dramatically. In other words, the appearance that tax revenue remains flat across the past 57 years of fluctuating top tax rates is a coincidence, to put it nicely, or an accounting fraud, to be a bit more accurate about it. More details, including corrected charts, are here: http://www.portfolio.com/views/blogs/odd-numbers/2008/05/20/lying-with-charts-wsj-edition http://www.portfolio.com/views/blogs/odd-numbers/2008/05/20/...
- jmatt 18y ago
  The corrected charts and the author at that link say that it's inconclusive. Which is pretty safe to say. Perot charts are interesting, more detailed and transparent. They cover areas you are worried about specifically the breakdown of different types of tax. If they are misleading they are transparent (enough) so that at least the user can figure it out. They cover a number of spending and tax issues: http://perotcharts.com/category/charts/taxation-charts/ http://perotcharts.com/category/charts/taxation-charts/ http://perotcharts.com/category/charts/ http://perotcharts.com/category/charts/
  - gabrielroth 18y ago
    He says it's "inconclusive" in the sense that the evidence doesn't prove what Hauser claims it proves.
    - jmatt 18y ago
      My analysis doesn't prove this, but Hauser's Law doesn't prove the opposite. That sounds inconclusive to me.
      - gabrielroth 18y ago
        Or with some context: 'My analysis doesn't prove [something I never claimed] but Hauser's Law doesn't prove the opposite [which Hauser and Ranson did claim].' In other words, on the growth effects of raising top tax rates he is indeed inconclusive. But on the question of whether Hauser is full of crap, he's pretty conclusive.
spoiledtechie 18y ago
Did you know that more than 40% of the country DOES NOT pay taxes? Someone should be taxing that 40%...
- ryanwaggoner 18y ago
  We are...it's called the lottery.
- jimbokun 18y ago
  The problem is that is the 40% of the country with hardly any money, so there's not much revenue to be gotten from them, anyway. They also still pay a fair amount of more regressive taxes like social security, sales taxes, etc.
  - anamax 18y ago
    > They also still pay a fair amount of more regressive taxes like social security Social security for low-income folks isn't so much a tax as a forced savings plan. For low-income folks, the return is pretty good. For higher-income folks, the return is lousy. For the rich, it's simply not a factor. Note that the "regression" comes from capping the amount taxed, but the benefits are capped too. If you uncap the amount taxed and uncap the benefits, Ross Perot will be getting >$100k benefits and the system will have even more economic trouble. If you uncap the amount taxed and keep the benefits cap, it becomes yet another welfare program and folks are going to start caring about the 15%. In the past, SS advocates have argued vehemently against turning it into yet another welfare program and have also opposed uncapped benefits. They argue that both will lead to decreased support for SS. Are they wrong?
- gnaritas 18y ago
  > Did you know that more than 40% of the country DOES NOT pay taxes? Did you know that everyone who complains about that is ignorant and selfish and should have their taxes doubled for even trying to make the poor poorer? By the way, it's a lie, everyone pays taxes, 40% just don't pay income taxes which is but one of many taxes we're all required to pay. Implying that they don't pay taxes is despicably intellectually dishonest.
steveplace 18y ago
I've got views on taxation that would get me crucified on reddit, but may have a more sympathetic ear on HN. Here's some examples: 1) Eliminating corporate taxes. Would increase employment, capital spending, and wouldn't leave too much of a dent in tax receipts. 2) Eliminating automatic payroll tax deductions. Have citizens actually write out a check every quarter. Very inefficient, but we'd start to see some major reforms in SS/Medicare as federal legislature starts to get calls from their constituents. 3) Cutting payroll taxes and offset revenue with energy taxes (gasoline and carbon).
- jimbokun 18y ago
  I have read several times that many of the so called "socialist" European countries actually have lower corporate taxes than the U.S. (They have higher payroll and income taxes, of course.) Offsetting other taxes with increases in energy taxes is close to the consensus opinion of economists, I think. So, maybe too extreme for Reddit, but not so far out of the mainstream, perhaps.
- jasonkester 18y ago
  Have citizens actually write out a check every quarter Have you actually met any citizens lately? I think you're overestimating the average person's ability to manage their finances. You know that idiot buddy of yours who only takes out $20 at a time from the cash machine so that he won't spend too much? That guy is orders of magnitude brighter than most regular people. Average people have this amazing ability to spend all of their money whenever they have any of it. So yeah, you and me would know that we needed to keep $60k in savings until April to pay taxes with. Nobody else is capable of doing that math.
tptacek 18y ago
A different perspective: http://www.fivethirtyeight.com/2009/03/missing-1000000-tax-bracket.html http://www.fivethirtyeight.com/2009/03/missing-1000000-tax-b...
mattmaroon 18y ago
This was posted here months ago, and shown to be grossly inadequate then. It's entirely meaningless because you could plot anything on that graph and draw an identical conclusion. Surely there must be something that does fluctuate and effect the tax revenue as a percentage of GDP, but if you plotted it on a graph it would appear not to. Moreover, top marginal tax rate is an all but irrelevant metric since the ultra-wealthy pay considerably lower due to capital gains.
ynniv 18y ago
As they say, there are lies, damn lies, and statistics. The article graphs the maximum tax bracket with the total tax revenue, with no account for the number of people in this bracket or the contribution of all other brackets in the system. Its understandable, since doing the right thing would require a lot of data and would look a bit like calculus (revenue being the area under the product of two curves), and would sadly be too difficult for many readers. But we don't have that data, so let me hypothesize a situation where this analysis isn't the whole truth. Article states that we take the same revenue whether the rich are taxed at 90% or 30%. Lets say that the left of the graph has 1 person making $1,000,000 in the 90% bracket, and 1000 other people making $50,000 in a 25% bracket. Total tax revenue is $13.4M. Now at the right of the graph, we have a dip where the top bracket is at 35%, so in the same situation, our revenue should have dropped to $12.8M but was instead stable! Money on trees! Except there is a simple alternative explanation, which is that the bottom tax bracket went from 25% to 26%. Unfortunately, data on this is not supplied by the article. It should be easy to see that raising taxes will raise tax revenue (not accounting for accounting tricks employed generally by the rich). Plotting a small component against an unqualified whole data set is plain poor research, and the WSJ should be ashamed.

58 points by divia 18y ago

I agree with the article's conclusion, but not necessarily its premise. Not sure "Hauser's Law" stands up, or is it just statistical coincidence? But yes, raising tax rates can certainly decrease tax yields. Take one of my closest friends. He's 28 now. He's a college dropout, and self-made millionaire as of age 24. Amazing guy. He was grossing about $800,000/year in his age 24/25/26 years. He was netting out mid/low six figures, and paying $50,000-$150,000 each year in various taxes. Working (no kidding) 80+ hour weeks. Often more. I've seen people cite the top marginal tax rate as being in the 90% range post WWII. But mobility has increased so much since then. My friend is an incredibly resourceful dude, as you can imagine. He's a good person. America wants him here, or at least should. But if the government now wanted, after writeoffs, interest deduction from taxes, etc, say... $400,000 per year from him - he'd be long gone. There's enough countries where you can get a "welcomed exceptional people" visa by putting enough money in the bank, or a resident's visa by buying a property. Dubai being one such place. So yeah, he'd be long gone if the government wanted to tax him more. Now, I can't speak to whether that's fair, or right, or if he's neglecting his patriotic duty by not being willing to stick around in the USA even if it wasn't a smart move for him financially. But it's the way it is. He grits his teeth and pays what he has to because he reckons he'll make more money here doing it that way. If that were to change, I reckon I'd be visiting him in Hong Kong, Dubai, or wherever else pretty fast. He and I both travel pretty regularly, and both of us have lived abroad some. Heck, I'd probably leave if taxes got high enough too.

nazgulnarsil 18y ago
I think this is becoming more and more true as globalization reduces the sedentary habits of business. when you're selling things over the internet, what incentive do you have to stay in a highly taxed region?
- jbjohns 18y ago
  Personally I would like to see things get to a point that people switch countries as often as they switch jobs. Anything that would force countries to compete with benefits vs. costs. Many people talk about market forces driving inefficiencies out of the market place. I don't think the Government should be so shielded from this. I would like to see the government be the best it can possibly be and no government is anywhere near that atm IMO.
  - ibsulon 18y ago
    ...and learning a new language every few years isn't an inefficiency?
    - jbjohns 18y ago
      I'm living in a country now that has four national languages. None of which are English, yet I know several people who've lived here for years and can't speak a word of any of those languages. English is international these days and will get you much much further then you might think.
      - theoneill 18y ago
        Switzerland? Or is there another?
        jbjohns 18y ago
        I live in Switzerland, yes, but I have Scottish college who worked previously in Germany and several friends from South Africa who've worked all over Europe. None of them can get much past "ja" or "nein". The thing to remember is that, outside of the U.S., most companies of any size are international. And once they're international the main language is probably going to be English because that will be the most accessible middle ground.
numair 18y ago
As an American citizen, you are taxed globally. Now, you may think that you can simply renounce your US citizenship, burn your passport and call it a day, but as of 1986 the IRS is able to come after you for taxes for up to 10 years after renunciation of citizenship. In addition, tax information is now shared with INS, so you can be barred entry from the US or end up getting carted off to somewhere you don't want to go if you don't have all of your ducks in a row. Perhaps you're thinking of starting an offshore company, and keeping your money there. Well, you've got to file a special form each year with the IRS for each entity of this sort, as they are known as "Controlled Foreign Corporations." Failure to provide the IRS with this information once again causes you to run afoul of US laws, which once again puts you at risk of punishment from the country that is globally known as "the world's policeman." You have to remember that you are a citizen of the world's smartest country. They have pretty much thought of everything.
- lionhearted 18y ago
  Ah, I expected someone to make this comment eventually. It's true that the United States' tax code is the only one in the world that sets tax on its citizens living in foreign countries, transacting business in foreign countries, with foreign citizens, foreign suppliers, doing business with no connection to the United States. Brits in particular have a good laugh at our international tax code. They simply don't believe it when I try explaining it to them. Anyway, as someone that knows quite a few expats and international businesspeople - practically speaking, it doesn't always go down like you say.
  - numair 18y ago
    There is a standard expat deduction -- I want to say it's something like $72,000 per year. If you make less than that, you don't have to pay anything. "Quite a few expats and international businesspeople" who make more money, and hide it, are constantly getting in trouble -- see, for example, the recent move with the US against UBS. It's becoming harder with every passing day to flout the rules, so it's really a lot better for people to design their lives with the rules in mind. And we're not the only country - there's always Bangladesh!
mattobrien 18y ago
Small point: Dubai is finished. It is bankrupt. It was a classic boomtown. All of the building was done on debt. Foreigners are leaving their cars at the airport, flying out, so that they do not end up in debtor's prison (yes, Dubai has debtor's prison). Not exactly friendly to entrepreneurs - take a risk, take on some debt, and land in jail. Every major country is going to have to spend to stop from falling into complete depression. Taxes will be higher everywhere. And the US will likely get through this crisis better than anywhere else. Having the reserve currency has its benefits after all. I really do not think going somewhere else to avoid higher taxes will make sense in the future.
- didroe 18y ago
  You've just got to pray that everyone keeps using Dollars to buy/sell oil and doesn't switch to the Euro.
  - mattobrien 18y ago
    The euro??? The euro has a much, much better chance of ceasing to exist than it does of replacing the dollar as the reserve currency. Countries like Spain and Italy that are near depression will have huge incentives to leave the euro so they can conduct their own monetary policy. If Eastern Europe is not bailed out before it goes bust, then more Western European banks will go bankrupt - and many countries in Europe are too small to bail out their banks. There will be immense pressure on the eurozone countries to leave the monetary union. In the land of the blind, the one-eyed man is king. The dollar does not look good, but compared to the euro or the yen, it looks great. We don't have to worry about losing reserve currency status anytime soon. We just need to figure out what to do with insolvent banks.
    - llimllib 18y ago
      I agree with you, and wanted to add this Marginal Revolution post which is tangentially related. Are the banks insolvent or illiquid? http://www.marginalrevolution.com/marginalrevolution/2009/03/john-hemptons-radical-view-of-banking.html http://www.marginalrevolution.com/marginalrevolution/2009/03...

gaius 18y ago

Obama says he'll set policy according to the science... Let's see, shall we?

steveplace 18y ago
I don't know if you've ever heard economists argue over what they call data, but it's a headache. It's hard to call this "science" as we can never really get a control group going as that's politically feasible.
anamax 18y ago
During the campaign, Obama said that he'd raise certain rates even if he knew that the result was less tax revenue.
- gaius 18y ago
  Really? That seems to be a lose-lose proposition to me.
  - anamax 18y ago
    Why do you believe that revenue is Obama's only goal?
    - gaius 18y ago
      Something to do with the squillion-dollar deficit.
      - anamax 18y ago
        Obama is a politician. Revenue is one of many tools, not a goal. To be fair, the amount of revenue "lost" by these increases is dwarfed by the "stimulus".

karl11 18y ago

I've never heard of this idea... I'm scanning econ blogs for the rest of the day to see if anyone comments on it.

davidw 18y ago
http://en.wikipedia.org/wiki/Hauser%27s_Law http://en.wikipedia.org/wiki/Hauser%27s_Law Has some more information. You won't find much commentary today, because the article is nearly a year old. In any case, this is basically just politics, so I flagged it.
- DanielBMarkham 18y ago
  I disagree. I think there is a lesson in pricing strategies here. The trade of money for goods or services always follows a curve. Whether that is money for governmental services or money for startup services. It's an extremely important concept for strategic market positioning. The argument of how it applies to government may be political, but the economics are assuredly not.
  - davidw 18y ago
    Governments are a corner case though. You don't get to decide, in most cases, what services you want and how much money you're going to spend for them. In many cases, the services provided are for public goods, which have wonky economics and pricing (or lack thereof) of their own. So it's fairly irrelevant to the sorts of products and things most of us work on. If you really want articles about strategic pricing, there is a lot of far more directly relevant material out there... trying to tie this into startups feels like "6 degrees of hacker news".
    - DanielBMarkham 18y ago
      You don't have to go through all these contortions. Increasing price always eventually results in less revenue. Your ability to choose has nothing to do with it. The curve holds even in forced markets. That's the point I was making. You're asking for an exact match or nothing, which I think is a little bit on the extreme reasoning side. We don't need six degrees of hacker news, but we can't abandon power curves because it might be uncomfortable to talk about them either. In fact, even the exceptions are interesting here. It turns out you can soak the rich, at least in narrow markets with the right positioning. What you can't do is force a generic product into a high-end market and expect similar returns. This is all good stuff. Take out the politics and you've got a great discussion about how product positioning affects gross revenue. The item in question is simply a fixed product in a forced market. But heck, we're in that situation now with many monopolies, so it's not like government owns this particular discussion -- it's a generic discussion with government simply as one example.

nazgulnarsil 18y ago

Doesn't this call into question the premise of a Laffer curve? http://en.wikipedia.org/wiki/Laffer_curve http://en.wikipedia.org/wiki/Laffer_curve And if increasing taxation lowers GDP doesn't it follow that lowering taxation should increase GDP?

gaius 18y ago
Reagan implemented that policy, but then got bogged down in bankrupting the USSR.

ericwaller 18y ago

The argument seems politically motivated. Lower taxes for the consumer tax brackets would be another valid way of increasing GDP (through an increase in consumer spending). And the graph is meaningless at best. We'd expect to find a correlation b/w the average tax rate across the board and tax revenue as a percentage of GDP. Plotting just the top tax bracket in an effort to show no correlation is intentionally misleading.

zupatol 18y ago
And even if he had discovered a valid correlation for this period in this country, there is no reason for calling it a 'law'. There is no indication that the correlation will hold up in the future or in the rest of the world.

TobascoKid 18y ago

The 80/20 rule strikes again

watmough 18y ago

I'm not surely whether the full story is being told in this article. The 90% tax may well act like a brake on wealth generation, but was only applied at the very highest incomes, not people on mid 6 figures. I bet the elimination of the top rate actually resulted in a large shift of taxation from the rich, to the middle-class, like you and me.

anamax 18y ago
> I bet the elimination of the top rate actually resulted in a large shift of taxation from the rich, to the middle-class, like you and me. You lose. The fraction of taxes paid by the upper 1% and 5% have gone up. (Yes, under Bush too.) This isn't just a Federal phenomena - it happens at the state level too. A huge fraction of CA's income tax comes from a very small number of people. Their income is volatile.

jyu 18y ago

When searching around for Hauser's Law, I found this comment that directly addresses some of the issues in the WSJ article: The problem I have with Hauser’s Law is that it doesn’t seem to include state and local taxes, which should raise the bar by quite a lot. Also, why should we look to the nation as a whole? To find out if there’s an upper limit, I think we should look at what state has the highest rate. For that matter, perhaps we should look at foreign countries. While tax revenues may been fairly stable over the past 50 years, that doesn’t mean we couldn’t generate more if we wanted to. Posted by edelfenbein at May 21, 2008 10:22 AM

mnemonicsloth 18y ago

On the other side of the macroeconomic coin, despite the standard political back-and-forth [1], government spending has also remained basically constant at 21% of GDP for the last few decades. But now that may be changing: http://www.marginalrevolution.com/marginalrevolution/2009/02/is-21-percent-gone.html http://www.marginalrevolution.com/marginalrevolution/2009/02... [1] Thinking of the Democrats and Republicans as countervaling processes maintaining a homeostatic equilibrium that expresses the electorate's preference for a government that spends 20% of GDP is a good way to rehabilitate yourself if you've picked up the vice of excessive political involvement.

gabrielroth 18y ago

Portfolio's Zubin Jelveh identified two major problems with Hauser's figures: (1) They don't include corporate tax revenue, which has dropped dramatically. (2) They DO include revenue from social security and other social-insurance programs, which aren't tied to tax rates and which have grown dramatically. In other words, the appearance that tax revenue remains flat across the past 57 years of fluctuating top tax rates is a coincidence, to put it nicely, or an accounting fraud, to be a bit more accurate about it. More details, including corrected charts, are here: http://www.portfolio.com/views/blogs/odd-numbers/2008/05/20/lying-with-charts-wsj-edition http://www.portfolio.com/views/blogs/odd-numbers/2008/05/20/...

jmatt 18y ago
The corrected charts and the author at that link say that it's inconclusive. Which is pretty safe to say. Perot charts are interesting, more detailed and transparent. They cover areas you are worried about specifically the breakdown of different types of tax. If they are misleading they are transparent (enough) so that at least the user can figure it out. They cover a number of spending and tax issues: http://perotcharts.com/category/charts/taxation-charts/ http://perotcharts.com/category/charts/taxation-charts/ http://perotcharts.com/category/charts/ http://perotcharts.com/category/charts/
- gabrielroth 18y ago
  He says it's "inconclusive" in the sense that the evidence doesn't prove what Hauser claims it proves.
  - jmatt 18y ago
    My analysis doesn't prove this, but Hauser's Law doesn't prove the opposite. That sounds inconclusive to me.
    - gabrielroth 18y ago
      Or with some context: 'My analysis doesn't prove [something I never claimed] but Hauser's Law doesn't prove the opposite [which Hauser and Ranson did claim].' In other words, on the growth effects of raising top tax rates he is indeed inconclusive. But on the question of whether Hauser is full of crap, he's pretty conclusive.

spoiledtechie 18y ago

Did you know that more than 40% of the country DOES NOT pay taxes? Someone should be taxing that 40%...

ryanwaggoner 18y ago
We are...it's called the lottery.
jimbokun 18y ago
The problem is that is the 40% of the country with hardly any money, so there's not much revenue to be gotten from them, anyway. They also still pay a fair amount of more regressive taxes like social security, sales taxes, etc.
- anamax 18y ago
  > They also still pay a fair amount of more regressive taxes like social security Social security for low-income folks isn't so much a tax as a forced savings plan. For low-income folks, the return is pretty good. For higher-income folks, the return is lousy. For the rich, it's simply not a factor. Note that the "regression" comes from capping the amount taxed, but the benefits are capped too. If you uncap the amount taxed and uncap the benefits, Ross Perot will be getting >$100k benefits and the system will have even more economic trouble. If you uncap the amount taxed and keep the benefits cap, it becomes yet another welfare program and folks are going to start caring about the 15%. In the past, SS advocates have argued vehemently against turning it into yet another welfare program and have also opposed uncapped benefits. They argue that both will lead to decreased support for SS. Are they wrong?
gnaritas 18y ago
> Did you know that more than 40% of the country DOES NOT pay taxes? Did you know that everyone who complains about that is ignorant and selfish and should have their taxes doubled for even trying to make the poor poorer? By the way, it's a lie, everyone pays taxes, 40% just don't pay income taxes which is but one of many taxes we're all required to pay. Implying that they don't pay taxes is despicably intellectually dishonest.

steveplace 18y ago

I've got views on taxation that would get me crucified on reddit, but may have a more sympathetic ear on HN. Here's some examples: 1) Eliminating corporate taxes. Would increase employment, capital spending, and wouldn't leave too much of a dent in tax receipts. 2) Eliminating automatic payroll tax deductions. Have citizens actually write out a check every quarter. Very inefficient, but we'd start to see some major reforms in SS/Medicare as federal legislature starts to get calls from their constituents. 3) Cutting payroll taxes and offset revenue with energy taxes (gasoline and carbon).

jimbokun 18y ago
I have read several times that many of the so called "socialist" European countries actually have lower corporate taxes than the U.S. (They have higher payroll and income taxes, of course.) Offsetting other taxes with increases in energy taxes is close to the consensus opinion of economists, I think. So, maybe too extreme for Reddit, but not so far out of the mainstream, perhaps.
jasonkester 18y ago
Have citizens actually write out a check every quarter Have you actually met any citizens lately? I think you're overestimating the average person's ability to manage their finances. You know that idiot buddy of yours who only takes out $20 at a time from the cash machine so that he won't spend too much? That guy is orders of magnitude brighter than most regular people. Average people have this amazing ability to spend all of their money whenever they have any of it. So yeah, you and me would know that we needed to keep $60k in savings until April to pay taxes with. Nobody else is capable of doing that math.

tptacek 18y ago

A different perspective: http://www.fivethirtyeight.com/2009/03/missing-1000000-tax-bracket.html http://www.fivethirtyeight.com/2009/03/missing-1000000-tax-b...

mattmaroon 18y ago

This was posted here months ago, and shown to be grossly inadequate then. It's entirely meaningless because you could plot anything on that graph and draw an identical conclusion. Surely there must be something that does fluctuate and effect the tax revenue as a percentage of GDP, but if you plotted it on a graph it would appear not to. Moreover, top marginal tax rate is an all but irrelevant metric since the ultra-wealthy pay considerably lower due to capital gains.

ynniv 18y ago

As they say, there are lies, damn lies, and statistics. The article graphs the maximum tax bracket with the total tax revenue, with no account for the number of people in this bracket or the contribution of all other brackets in the system. Its understandable, since doing the right thing would require a lot of data and would look a bit like calculus (revenue being the area under the product of two curves), and would sadly be too difficult for many readers. But we don't have that data, so let me hypothesize a situation where this analysis isn't the whole truth. Article states that we take the same revenue whether the rich are taxed at 90% or 30%. Lets say that the left of the graph has 1 person making $1,000,000 in the 90% bracket, and 1000 other people making $50,000 in a 25% bracket. Total tax revenue is $13.4M. Now at the right of the graph, we have a dip where the top bracket is at 35%, so in the same situation, our revenue should have dropped to $12.8M but was instead stable! Money on trees! Except there is a simple alternative explanation, which is that the bottom tax bracket went from 25% to 26%. Unfortunately, data on this is not supplied by the article. It should be easy to see that raising taxes will raise tax revenue (not accounting for accounting tricks employed generally by the rich). Plotting a small component against an unqualified whole data set is plain poor research, and the WSJ should be ashamed.