Hauser's "Law" is the most misused piece of economic psuedo-analysis out there, cited by proponents of flat taxes and low top rates to assert that budget deficits may be affected by spending and everything else under the sun, but
certainly not lowered top rates. Even Rand Paul cited it in a Daily Show interview (but that's probably no surprise.
First off, Hauser cited his theory (let's cut the bunk of calling it a "Law"; that's a label attached by its proponents only and not economists at large) in 1993. I wonder how Clinton's subsequent tax policies and its undeniable (by the sane) contribution to eliminating huge deficits would've affected his analysis.
Secondly, this "Law" was resurrected by a Wall St. Journal editorial 3 years ago titled: "You Can't Soak the Rich". See where this is going?
Unfortunately, this "Law" doesn't stand up to simple scrutiny as seen
here. Also enjoy the additional following short analysis (link provided to original article to observe the actual charts referenced below).
http://www.tnr.com/blog/jonathan-chait/79495/lying-chart-the-day-classic-edition"Ubiquitous libertarian anti-tax pundit Veronique de Rugy pulls out the old hackneyed Republican line that tax revenues can't go above 19 percent. She even has a chart!
I've seen versions of this dating back two decades. Part of the scam is a simply visual trick familiar to anybody who read "How To Lie With Statistics" -- you scale the chart to make a major change appear tiny. De Rugy's chart, one which the scale of federal tax revenue goes from an absurd o to 100, seems to show little change, thus proving the supply-side claim that increasing marginal tax rates is self-defeating. Here's a chart showing the range of revenue within a reasonable scale:
As you can see, the swings are fairly dramatic. De Rugy's chart purports to show that reducing the top marginal tax rate produced no real change in revenue. But of course the first Reagan tax cuts in 1981 caused revenue to plummet. The top marginal tax rate was also reduced in 1986, but that was accompanied by equally large reductions in tax expenditures, and the whole reform was not designed to reduce revenue.
Meanwhile, the tax hikes by George W. Bush and Bill Clinton -- which supply-siders claimed would not increase revenue -- were followed by a massive spike in revenue. And then the tax cuts by George W. Bush -- which supply-siders claimed would not reduced revenue by very much -- were followed by a massive, 5% of GDP drop in revenue, which receded to 2% of revenue at the peak of the 2000s economic cycle."
