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What Is Hauser's Law?

Hauser's law is a theory that the United States federal revenue as a percentage of gross domestic product (GDP) has been about 19 percent since World War II, regardless of changes in the top marginal personal income tax rate. Kurt Hauser, the proponent of Hauser's law, said this is because high taxes disincentivize saving, working and investing, which leads to less economic activity. Though not a proven law, Hauser's law seems to match with economic data. Revenue as a percentage of GDP experiences swings, but it averages out to about 19 percent.

More facts about Hauser's law:

  • The top marginal income tax rate shifted dramatically from 1950 and 2010. The highest rates were in the early 1950s, at a little more than 90 percent. The lowest rates were in the late 1980s and early 1990s, at about 28 percent.

  • Hauser's law is related to another economic theory called a Laffer curve, which represents the relationship between tax revenue and all possible tax rates. The Laffer curve basically shows that there is an optimal point of taxation, and at that point, the government can collect the most taxes. Anything above or below that, and the government will not be able to collect the most taxes, because people will either keep the money if they're undertaxed. If they're overtaxed, they will be less inclined to work, or they will hide revenue.

  • There are critics of both Hauser's law and the Laffer curve. Some economists argue that the swings in tax revenue are too dramatic to be worked into a usable average, and others argue that Hauser's law works only in nations that have a federalist taxation system and would not work in a nation that has value-added taxes.

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More Info: www.hoover.org

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