

You Can't Soak the Rich - divia
http://online.wsj.com/article/SB121124460502305693.html

======
gabrielroth
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/...](http://www.portfolio.com/views/blogs/odd-
numbers/2008/05/20/lying-with-charts-wsj-edition)

~~~
jmatt
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/>

~~~
gabrielroth
He says it's "inconclusive" in the sense that the evidence doesn't prove what
Hauser claims it proves.

~~~
jmatt
_My analysis doesn't prove this, but Hauser's Law doesn't prove the opposite._

That sounds inconclusive to me.

~~~
gabrielroth
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.

------
ericwaller
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
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.

------
mattmaroon
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.

------
mnemonicsloth
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...](http://www.marginalrevolution.com/marginalrevolution/2009/02/is-21-percent-
gone.html)

[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.

------
jyu
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_

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ynniv
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.

------
tptacek
A different perspective:

[http://www.fivethirtyeight.com/2009/03/missing-1000000-tax-b...](http://www.fivethirtyeight.com/2009/03/missing-1000000-tax-
bracket.html)

------
nazgulnarsil
Doesn't this call into question the premise of a 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
Reagan implemented that policy, but then got bogged down in bankrupting the
USSR.

------
steveplace
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
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.

------
lionhearted
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.

~~~
numair
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.

~~~
ckinnan
The global taxation feature of the US code is a double taxation on income, as
you typically pay taxes in the foreign jurisdiction as well (There are tax
treaties that reduce this double taxation in many jurisdictions, but only to a
certain amount). It also applies to US businesses that operate globally and is
a major reason so many multinationals move their headquarters offshore. The
US, I believe, is one of only two countries in the world that taxes citizens
globally, the other being Israel.

~~~
xiaoma
That's definitely not the case anymore. Canadians have to pay taxes on world-
wide income unless they can demonstrate they have "severed ties" with their
Canadian residence. Working abroad for a year or two in an expat job doesn't
cut it.

More and more countries are moving towards world-wide taxation, unfortunately.

------
watmough
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
> 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.

------
karl11
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
<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
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
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
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.

------
spoiledtechie
Did you know that more than 40% of the country DOES NOT pay taxes?

Someone should be taxing that 40%...

~~~
gnaritas
> 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.

~~~
jacoblyles
Note: This was originally a little more harsh.

I don't think I am selfish and ignorant for worrying about the incentive
effects involved when a majority of the voting public do not pay anything for
the programs they vote for.

Of course, I am pretty poor right now myself (Grad school), so your suggestion
that my taxes should be doubled doesn't really do a lot.

~~~
gnaritas
> I am worried about the incentive effects involved when a majority of the
> voting public do not pay anything for the programs they vote for.

Don't, the wealthy don't need you to worry about them, they have paid
lobbyists to do that for them and they're well taken care of already. You need
not fear for the wealthy, they'll be just fine, they always are.

> I can't figure out how that is ignorant or selfish.

It's ignorant because you're concerned about those who need your concern the
least, because they've brainwashed you into it by making you think you'll be
one of them one day.

It's selfish because you've directed your anger at the poor, those who need
help the most, you're complaining about it as if they're the ones who write
the rules or control the system; they don't.

Look, there's absolutely nothing wrong with being rich, or wanting to be rich.
But it's fucking selfish to point fingers at the poor and say they aren't
paying enough.

Frankly, you don't know what poor is, you're in Grad school for Christ's sake,
that's not poor.

Poor is shopping in dumpsters for clothes and food because you have no money
and no hope of attaining money.

Poor kids don't go to college, many don't finish high school, staying alive is
too pressing a concern to be off "wasting time learning" when you're little
brother is starving and you could be bouncing store to store buying 1 cent gum
with food stamps so you can get 99 cents change to eventually collect up
enough to pay the rent so you're not all homeless tomorrow morning.

Poor is collecting rain water in a big tub on the back porch so you can take a
bath, and then sharing the water with your siblings one after the next because
you don't have indoor plumbing and you've never seen a shower.

Poor is walking 200 feet in snow to go to the bathroom, again because you
don't have indoor plumbing and you built an outhouse near the edge of the
woods and the distance in necessary to keep the stink away.

This shit happens, here, in America, daily. Poor is an economic status most
are born into and never get enough education to realize ways out even exist.
You don't fucking know poor, point your accusatory finger elsewhere.

~~~
jacoblyles
> you're selfish because you've directed your anger at the poor

Who said I'm angry at the poor? I'm not. I just think there is a certain
intelligent logic in how taxation and representation are rhetorically linked.
I also think a majority-rules democratic system where a majority pay $0 in
taxes in unsustainable. I think the decisions made in such a system will be
stupid and short-sighted, leading to massive deficits, economic collapse, and
maybe even political instability in the long run.

Leave your emotions aside for a moment. I am simply trying to discuss what is
wise. I am not advocating eating the poor. However, I see that you already
have your mind made up and have no desire for discussion.

In addition, you're imputing a ton of motives and positions to me that I did
not state. You're in attack dog mode for no reason, and there is no way that I
can intelligently engage you if you've already painted me as an evil
misanthrope.

The number of people who pay no net taxes in this country is much larger than
the number that get their clothes from dumpsters. You're painting a dishonest
scenario and smearing me with dishonest motives.

In general I don't enjoy talking to people who think that those who disagree
with them are evil. I can say that I didn't enjoy this conversation.

~~~
gnaritas
> Who said I'm angry at the poor?

You did when you brought up the "40% don't pay taxes" b.s. line that I'm
beyond tired of hearing from conservatives. I've heard it a hundred times and
it's always from an angry conservative blaming poor lazy people for stealing
their money with tax credits. After you hear a lie enough times you start to
get annoyed with the people perpetuating it.

> I also think a majority-rules democratic system where a majority pay $0 in
> taxes in unsustainable.

Straw man, we have no such system.

> Leave your emotions aside for a moment. I am simply trying to discuss what
> is wise.

Easily done, what is wise to look not at the poor, but at the well off when
looking for sources of revenue. The poor need sympathy, not scorn.

> In addition, you're imputing a ton of motives and positions to me that I did
> not state.

Then don't use the arguments primarily shared by people that hold those
positions.

> there is no way that I can intelligently engage you if you've already
> painted me as an evil misanthrope

I don't think you're evil; engage me with logic and questions that don't imply
blame on the poorest among us.

> The number of people who pay no net taxes in this country is much larger
> than the number that get their clothes from dumpsters.

I agree, and I didn't claim otherwise. I was disputing your claim that you
were somewhat poor, you aren't.

I don't enjoy people attacking people who don't make enough money to pay taxes
under our current system. Those people are _not the problem_ with our system
and any attempt to put the focus there seems to me a shallow attempt to deny
that simple fact.

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

~~~
anamax
During the campaign, Obama said that he'd raise certain rates even if he knew
that the result was less tax revenue.

~~~
gaius
Really? That seems to be a lose-lose proposition to me.

~~~
anamax
Why do you believe that revenue is Obama's only goal?

~~~
gaius
Something to do with the squillion-dollar deficit.

~~~
anamax
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".

------
TobascoKid
The 80/20 rule strikes again

