Lying With Charts: WSJ Edition

by: Zubin Jelveh

In an Op-Ed in Tuesday's Wall Street Journal, David Ranson of H.C. Wainwright puts forth this chart showing that overall tax revenues as a percentage of GDP have remained remarkably stable even as the top marginal tax rate has fallen:

(FYI, Hauser's Law refers to Kurt Hauser, who Ranson says first identified this phenomenon in 1993.)

Ranson then uses this fact to make the Republican-friendly argument that raising taxes on the wealthy - as both Barack Obama and Hillary Clinton are expected to try to do - will lower government revenue because higher taxes tend to cut GDP growth. He wrote: migrates away from regimes in which it is treated harshly, and toward regimes in which it is free to be invested profitably and safely. In this regard, the capital controlled by our richest citizens is especially tax-intolerant.

But there are a couple of problems with this argument. First, it strikes me that if you're going to plot tax rates for individuals, you should also look at tax revenues from individuals (all charts below show revenues as percentage of GDP):

While staying relatively stable, this source of tax revenue has ticked higher over the last 50+ years. So, why hasn't overall tax revenues also ticked slightly higher? Let's look at corporate tax revenues:

Hmmm, corporate tax revenues have declined dramatically. Why, then haven't overall tax revenues dropped? Well, we can primarily thank social insurance programs like Social Security for that. Here's a chart showing social insurance program tax revenues:

That's primarily how Hauser's Law also works. And this brings us to the second problem with Ranson's claim. If you take social insurance tax revenues out of overall revenues (which Ranson's chart doesn't appear to do), you're left with this:

(The pink shows social insurance revenues included, and the blue shows what happens when they're taken out.)

Hauser's Law, which is really the Laffer Curve by another name, depends on very Democrat-friendly programs for its validity.

Does all of this mean that raising tax rates on the rich won't lower growth? My analysis doesn't prove this, but Hauser's Law doesn't prove the opposite.