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Hauser’s Law trumps the Laffer Curve and unfunded liabilities trump GDP growth

Posted by John T. Reed on

CBO says Trump tax cuts increase national debt by $1T oven ten years

I just heard Rush talking about dynamic scoring of the budget projections. CBO says the Trump tax cuts will add $1T to the national debt over the next ten years. He says not so because people’s behavior will change and the tax revenue will go up. Without mentioning it, he is saying the Laffer curve will apply.

Laffer Curve

I like the Laffer Curve, which is really the Adam Smith curve. It applies to taxes, casino and lottery house take. and mass transit fares. It says that if you raise tax rates, or the percentage the “house” takes in casino gambling or lotteries, or mass transit fares, the revenue of the owner will increase up to a point, but after that point, higher rates will cause the the revenue to go DOWN, because fewer people will earn the income in question, play the casino games, or use the mass transit.

Hauser’s Law

But in the case of taxes, Hauser’s Law trumps the Laffer Curve. Hauser’s Law, which should be called Hauser’s Observation, says that tax revenue will always be about 19.5% of GDP, no matter what the marginal tax rates are at the time.

Why doesn’t the Laffer Curve apply to taxes? It would if everyone paid the same rate. And it probably does if you look at just each bracket only. But with double progressive income taxes (progressive both as to marginal rates and the income thresholds that trigger those rates) the high-bracket people behave like Laffer says, but the low bracket people do not change their behavior or may even change their behavior in the other direction, because their rate went down. 

Here is the Hauser’s Law math: 

Say the GDP goes up 4% a year for the next ten years, which would be a great increase over the last ten years. GDP is about $20T. 4% of $20T is $800 B. Hauser says 19.5% of that goes to the IRS. 19.5% x $800 B = $156B.

If the CBO is indeed not counting that $156B per year, they are off by 10 x $156B = $1.56T. But 4% growth every year for ten years is highly unlikely. Even it he gets reelected, Trump only gets seven more years. Democrats will be clawing at him every one of those years trying to repeal the Trump tax cuts.

Increased GDP only way to increased government spending

What does Hauser’s Law tell Democrats? If you want to increase government spending, increase the GDP. Raising marginal rates on the rich has no effect on anything but the incentives to avoid paying taxes. 

And what do Democrats say in response to that?

“That’s trickle-down economics. We don’t believe in that. We will simply steal the money from the rich under color of law.”

And what does this tell us about what Democrats are really all about? They are really all about class warfare and envy, not increasing government spending or middle class incomes. 

‘I will give you whatever you want’

An old Russian joke tells the story of a peasant with one cow who hates his neighbor because he has two. A sorcerer offers to grant the envious farmer a single wish. “Kill one of my neighbor’s cows!” he demands.

That is what the Democrats are about: hurting the rich, not helping the poor or middle class. Indeed, they will, and long have, hurt the poor and middle class in order to hurt the rich, like the minimum wage—cutting off the noses of the poor and middle class to spite the rich.

End point—a balanced budget whether you like it or not

And what is the end point of all this? US hyperinflation followed by bond and entitlement default and, in effect, a “balanced budget amendment” forced upon us by an inability of the U.S. government to borrow money anymore. 

$200T of unfunded liabilities

This is not my opinion. It is arithmetic. We now have something like $200T in unfunded liabilities. $156B a year ain’t gonna cover that. The GDP of the entire world is $78.28T.

What can you do to protect yourself? Read and follow my book How to Protect Your Life Savings from Hyperinflation & Depression.

Hauser's law is the proposition 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.

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