If the definition of a gaffe is when a politician tells the truth, Paul Volcker committed a major gaffe in a recent speech. Volcker (one of President Obama’s chief economic advisers) cited Hauser’s law and compared it to the current rate of federal spending. He noted that the federal government always collects about 18.5% of GDP in tax revenue regardless of tax rates. When spending was around 20%, this meant a modest deficit, but spending is now around 25% or more. That means enormous deficits.
Hauser’s law observes you can’t get tax collections to 25% by tinkering with tax rates or adding a few new taxes; we need a different system to fund today’s government. And that, Volcker concludes, means a VAT. He says there is no prospect of getting government spending back to 20%. (Well, he is a Democrat.)
POSTSCRIPT: I actually understood Hauser’s law to say that government collected 19.5% of GDP, but that difference doesn’t matter to Volcker’s point.