Taxes are the largest expense that most Excel users and our employers face. Unfortunately, few of us have the ability to reduce our taxes significantly ... other than by earning significantly less money.
This Excel chart suggests a long-term solution to our problem with taxes. It's based on US tax data, but the chances are good that data for other countries will show similar results.
David Ranson revisited Hauser's Law in "You Can't Soak the Rich", an op-ed published in the May 20, 2008, edition of The Wall Street Journal.
"The data show," Ranson wrote, "that the tax yield has been independent of marginal tax rates over this period, but tax revenue is directly proportional to GDP. So if we want to increase tax revenue, we need to increase GDP."
"What happens," he wrote, "if we instead raise tax rates? Economists of all persuasions accept that a tax rate hike will reduce GNP, in which case Hauser's Law says it will also lower tax revenue."
So here's the bottom line: Hauser's Law shows that the only way that politicians can increase government revenue significantly is to increase economic growth significantly. And the most effective way they can do that is to lower tax rates significantly.
Everyone should agree about this issue. A growing economy is good for rich and poor, young and old, and of every political persuasion. Politicians in every party, in every country, just need to be convinced of a simple fact: They'll have more money to spend if you have more money to spend!
Click here to download a working version of this chart. The workbook has live links to the source data, and all supporting calculations.