Bush Tax Cuts To Expire : Revenues WILL Fall

I know many people have given this some thought as talk increases over the Bush tax cuts that are about to expire. Just how much more can the population pay to support programs that are designed to transfer funds from the productive to the unproductive. How much revenue will be lost with higher taxes resulting in lost jobs?

Obama told us before the voting even started that he was going to seek 'income redistribution'. He told us energy prices would go up with his 'cap and tax' program, a form of tax disguised as rate increases. Where do you think all the money is coming from for the bailouts? Stimulus programs? More taxes but no more jobs! If people don't have jobs they can't pay taxes.

Many in the Obama administration believe that they haven't spent enough! Where will that money come from? hmmmmm - I know, more and higher taxes. More debt.

If you will remember, he told us exactly what he was going to do but to so many it didn't matter. Was it fear of being called a racist if you didn't want Obama? Was it self loathing for thinking prosperity was founded in wanting to be better than you are right now, while others were hurting? Was it that so many in our fellow citizens are just plain ignorant of politics and the real world?

What ever the case, it worked on a majority of voters. Now we have to figure out how to clean up the mess and soon.

The Limit Of Tax Revenues
Source: David Ranson, "The Limit of Tax Revenues," National Center for Policy Analysis, August 4, 2010.

"Hauser's Law" (named after W. Kurt Hauser of the Hoover Institution) states that there has been a close proportionality between revenue and gross domestic product (GDP) since World War II, despite big changes in marginal tax rates in both directions.

The law states that there is a kind of capacity ceiling for federal tax receipts of about 19 percent of GDP.

In short, Hauser's Law provides a simple basis for testing the validity of any government's revenue projections, says David Ranson, president and director of research of H.C. Wainwright & Co. Economics: Today, since the U.S. economy already suffers from a large output gap that is expected to take many years to close, 18.3 percent must be a realistic upper limit on the ratio of budget revenues to GDP for years to come.

Any major tax increase will reduce GDP and therefore revenues too.

How long does it take to fire up the economy once capital is more readily available? The answer is: Longer than it takes to close it down.

According to Congressional Budget Office (CBO) projections based on the current budget:
The revenue-to-GDP ratio could reach 18.3 percent as early as 2013 and rise to 19.6 percent in 2020.

Such numbers implicitly assume that the U.S. labor market will get back to sustainable "full employment" by 2013 and that GDP will exceed its potential thereafter. However, when the projections are tempered by the constraints of Hauser's Law, it is clear that deficit spending will grow faster than the official estimates show, says Ranson.

For budget planning, it is wiser and safer to assume that tax receipts will remain at a historically realistic ratio to GDP no matter how tax rates are manipulated. That leads to the conclusion that current projections of federal revenue are, once again, unrealistically high, says Ranson.