Grasping Reality on TypePad, by Brad DeLong

Four things happen with personal income tax receipts as a share of GDP:

1. They tend to go up over time if rates stay constant because inflation (before 1981) and economic growth tend to push more income into higher tax brackets.
2. They fall when tax rates are cut.
3. They rise when the tax base is expanded.
4. They fall in recessions and rise in booms.

You can see the Kennedy-Johnson tax cut of the 1960s. In response to it personal tax revenues as a share of GDP fell (albeit by only about 3/4 as much as the cut in rates or a "static" estimate of the revenue effect would naively suggest). Thereafter we had the--unwelcome, inflationary--boom of the late 1960s that (along with the surtax of the late 1960s) pushes tax collections up before the recession of 1970-71 pushes them down.

You can see the Reagan tax cut of the 1980s: in response to it personal tax revenues as a share of GDPfall.

You can see what I call the Bradley-Baker tax reform of 1986: broaden the base (which collects more revenue) and lower the rates (which collects less) and so have next to zero net effect.

You see the (tiny) Clinton tax-rate increase of 1993--and thereafter tax revenues boom not because the tax increase was big (it wasn't) but because of the reduced deficit and other factors that drove the boom of the late 1990s.

And you can see the Bush tax cut of 2001--followed by no tendency of revenue to return to its pre-tax cut level, and then by the collapse of personal income tax revenue with the coming of the Little Depression.

That's the story.

Now comes wingnut-sounding David Ranson--given airtime by Forbes--to write:

Probing The Limits Of Federal Revenue: In the field of taxation there is one natural law which policymakers persist in ignoring. Formulated by W. Kurt Hauser nearly twenty years ago, this is the empirical observation that even the most aggressive taxation has never succeeded in sustaining federal revenue beyond 19% of GDP. The top bracket rate has been as high as 94% (under Franklin Roosevelt) and as low as 28% (under Ronald Reagan) with no noticeable difference in the percentage tax take--that is, the ratio of revenue to GDP. It's not an exaggeration to describe this historical fact as Hauser's Law. Rates that exceed the economy's willingness to pay are self-defeating because they curb the economy enough to offset the revenue gain...

Does Ranson really want to argue that the inflationary boom of the 1960s was a wonderful consequence of the Kennedy-Johnson tax cut? Does he want to argue that the George H.W. Bush-Clinton tax increases of the 1990s crippled the economy? Does he want to take "credit" for the "Bush boom" of the 2000s?

Not if he is sane.

So what is Ranson doing? He is playing intellectual three-card-monte with you.

And note that total revenues as a share of GDP did recover after the Reagan tax cuts. Note that: revenues. Not personal income tax revenues, but revenues. Why? Because Reagan raised Social Security taxes. That you can cut income tax rates and not lose revenue is not at all surprising if you then raise some other tax.

Does Ranson want to claim that personal income tax receipts as a share of GDP returned to their 1980 levels after the Reagan tax cut? No. Because they did not do so.