You can't soak the rich

A recent opinion column by David Ranson in the Wall Street Journal explains something I've long suspected: You can't soak the rich. You can try, mind you, but you can't succeed, at least not often and not for long.

Ranson explains this as "[Ken] Hauser's Law", namely "No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP."

The explanation continues: "The federal tax 'yield' (revenues divided by GDP) has remained close to 19.5%, even as the top tax bracket was brought down from 91% to the present 35%. This is what scientists call an 'independence theorem,' and it cuts the Gordian Knot of tax policy debate.

What happens if we instead raise tax rates? Economists of all persuasions accept that a tax rate hike will reduce GDP, in which case Hauser's Law says it will also lower tax revenue. That's a highly inconvenient truth for redistributive tax policy, and it flies in the face of deeply felt beliefs about social justice."

Ranson explains: "What makes Hauser's Law work? For supply-siders there is no mystery. As Mr. Hauser said: 'Raising taxes encourages taxpayers to shift, hide and underreport income. . . . Higher taxes reduce the incentives to work, produce, invest and save, thereby dampening overall economic activity and job creation.'

Putting it a different way, capital 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."

In other words, we now have somewhat scientific evidence for readily-observable facts, such as that for all their talk about being unfairly under-taxed, both ultra-rich Bill Gates and ultra-rich Warren Buffet actually act so as to minimize their tax obligation. And so long as our laws are enacted by politicians who are both affluent themselves and dependent on other affluent citizens for their continuance in office, it is beyond silly to expect any legislation to become and remain law that seriously inconveniences the affluent. Robin Hood is a good story, but here in the real world, the only way the poor end up getting more is if the non-poor do too.

The only exception I can think of is voluntary charity. Again using Bill Gates and Warren Buffet as an example, they give more away voluntarily to help the truly poor peoples of the World than our government could ever manage to take from them involuntarily, let alone channel so effectively to areas of real need.

So, the next time a politician promises to take from the rich and give to you, just remember Hauser's Law guarantees it'll never happen, not in this fallen world.