Thursday, May 22, 2008

New Heights in Crackpot Hackery

The Laffer Curve has found a cousin--Hauser's Law. Once again, a simplistic idea that tells conservatives what they want to believe (because more rigorous analysis doesn't).

A Wall Street Journal op-ed (raise your hand if you're surprised) is the source of this new fun fact.

Apparently, tax rates don't matter, because revenues remain at about the same percentage of GDP no matter what we do. But look at what is offered as proof:

Yep, a comparison of nominal (not even effective) top marginal individual income tax rates, with revenue from all sources (individual income tax, corporate income tax, payroll taxes, excise taxes, and so forth) as a percentage of GDP.

As is this weren't nutty enough, the claimed "law" holds only for the postwar United States--never mind that many nations around the world manage to persist for long periods with significantly higher tax revenues as a percentage of GDP (Wikipedia has a table for 2005).

Also, as a moment at the Statistical Abstract web site can tell you, Federal receipts as a percentage of GDP over the postwar period have ranged from 14.4 percent in 1950 to 20.9 percent in 2000--a wide range that the restricted axis of the graph obscures (wasn't that in a very early chapter of How to Lie with Statistics?). Of course, you do have to download the Excel file to get those data.

Fortunately, it didn't take long for Zubin Jelveh ("Lying With Charts: WSJ Edition") to notice that individual income tax receipts have in fact been trending up slightly as a percentage of GDP, and also that corporate tax revenues have declined dramatically and payroll tax revenues have increased significantly. In case we didn't already know, evidence that the burden has been distributed down the income scale.

Jelveh's conclusion: "Hauser's Law, which is really the Laffer Curve by another name, depends on very Democrat-friendly programs for its validity. " I would add, for very small values of valid.

The supposed point of all this is that raising tax rates won't increase revenues. From Hauser's chart, though, they won't decrease them, either! There is no decrease in revenue on Hauser's graph for the period in the 1990s when the top marginal rate was increased. So they have to add another article of faith--that higher taxes reduce GDP. Only there's a small problem with that article of faith--if the revenues from those higher taxes are spent on goods and services, or for that matter on paying down domestic debt, then that adds to GDP just as much as individual consumption would.

It's all just a restatement of the right-wing tenet most recently voiced by Lawrence Kudlow: "This idea of rewarding work instead of wealth is just insane.", deftly caught by Ezra Klein.

And any old drivel will serve to support it.