Only VAT Can Fund Leftist Welfare State

Curtis Dubay / May 19, 2010

Recently in the Wall Street Journal, David Ranson pointed out what tax economists have known for a long time: no matter what changes Congress makes to the existing tax code, it will continue to raise the same amount of revenue as a percentage of GDP year-after-year. Ranson writes:

Despite big changes in marginal tax rates in both directions,”Hauser’s Law,” as I call this formula, reveals a kind of capacity ceiling for federal tax receipts at about 19% of GDP.

The income tax is the predominant revenue raiser for the federal government, and fluctuations in the revenue it collects have the biggest effect on the total change in tax collections year-to-year. Over the course of its history the top rate has been as high as 91 percent and as low as 28 percent. Even with such large variations in top rates, the income tax has raised a remarkably consistent amount of revenue as the chart shows. (more…)