We first wrote about Hauser's Law in 2009. At the time, we described it as "one of the stranger phenomenons in economic data". The law itself was proposed by W. Kurt Hauser in 1993, who observed:

No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP.

In 2009, we found total tax collections the U.S. government averaged 17.8% of GDP in the years from 1946 through 2008, with a standard deviation of 1.2% of GDP. Six years later, we revisited it once again and found that while the standard deviation was the same, average total tax collections from 1946 through 2018 was lowered to 16.8% of GDP because of 2013's comprehensive revision of GDP that significantly boosted historic GDP estimates after the basic GDP formula was redefined.

Seven years later, we're revisiting the historic data once again to see if it still holds. Spoiler alert: it does!

Here's a triple-set of charts to show off Hauser's Law in action!

Since we're now spanning 80 years worth of data, during which the U.S.' maximum income tax rate has ranged between 28% and 92% of income, we confirm once again that the U.S. government's total tax collections have averaged 16.8% with a standard deviation of 1.2% of GDP from 1946 through 2025. If you know your normal distribution bell curve from statistics, that means over 99% of the U.S. government's total tax collections from 1946 through 2026 would be expected to fall between 13.2% and 20.4% of GDP, which they have.

The pattern also holds true for U.S. personal income tax collections, although here, the average is 7.7% of GDP and the standard deviation is 0.8% of GDP.

What all these numbers mean is that the U.S. government's tax collections have been remarkably stable as a percent of GDP, or the national income, over the last eight decades, regardless of how the top income tax rate has been set. We think that represents a political equilibrium, especially as higher rates of tax collections have not been able to be sustained.

There are just four periods where tax collections rose more than one standard deviation above the mean level, none of which proved to be sustainable.

1. In 1968, the Democratic U.S. Congress and President Lyndon Johnson passed a shock 10% income surtax that took effect in mid-year, spiking the top tax rate from 70% to 77% and increasing the amount collected from top income tax earners by an additional 10%. Coupled with a spike in inflation, for which personal income taxes were not adjusted to compensate, this tax hike led to outsize income tax collections in that year.
2. The sustained high inflation of 1978 (7.62%), 1979 (11.22%), 1980 (13.58%) and 1981 (10.35%) led to higher tax collections through bracket creep, as income tax brackets in the U.S. were not adjusted for inflation until 1985 as part of President Ronald Reagan's first term Economic Recovery Tax Act.
3. Beginning in April 1997, a cut in the capital gains tax rate caused the Dot Com Stock Market Bubble to being inflating. As it expanded, the bubble minted a large number of new millionaires as investors swarmed to participate in Internet and "tech" company initial public offerings or private capital ventures, which in turn, inflated personal income tax collections. Unfortunately, like the vaporware produced by many of the companies that sprang up to exploit the investor buying frenzy, the illusion of prosperity could not be sustained and tax collections crashed with the incomes of the Internet titans in the bursting of the bubble, leading to the recession that followed. It eventually came to an end in 2003 after the capital gains tax rate was increased to be equal to the dividend tax rate once again.
4. In 2022, tax collections spiked with the recovery from the coronavirus pandemic after government-mandated lockdowns and restrictions on businesses were lifted.

There's one final piece of the puzzle we haven't tackled, and that's why the U.S. national debt has grown so large even as federal tax collections have been so relatively stable. Here we find three factors that have contributed to its growth:

1. The launch of Medicare in 1965 coincides with a period in which government spending no longer drops below the long-term average of tax collections. Before Medicare was passed into law, government spending only surged above that level when wars were fought, dropping back to pre-war levels after they ended. World War 2 is a classic example, with its drawdown in spending taking place in the years after it ended in 1945. The 1980s Cold War defense buildup also shows the same pattern, with spending returning to pre-buildup levels as a percent of GDP in the 1990s as a peace dividend.
2. The Great Financial Crisis of 2008 led to massive bailouts by the U.S. government. Even though that crisis ended, spending failed to return to its pre-crisis level because President Obama's Affordable Care Act permanently inflated the government's spending from 2014 onward.
3. The Coronavirus Pandemic of 2020 led to massive government subsidies to offset the impact of the extreme economic disruption caused by state and local government lockdowns. However, two Biden administration initiatives combined to permanently inflate government spending above their pre-crisis levels: the American Recovery Act with its inflationary impact and the cynically-named Inflation Reduction Act that further boosted spending. These two initiatives kept government spending elevated at levels far above what the U.S. government can reasonably expect to collect in taxes based on the last 80 years of experience.

And that, in a nutshell, is why the U.S. government has gone from running mostly balanced budgets in the years before 1965 to running consistently in the red in the years since with few exceptions. The upward ratcheting of government spending in the years since 1965, and particularly since 2008 to levels far above what the U.S. government is capable of sustaining through its stable tax collections is why the national debt has grown to exceed $40 trillion.

Previously on Political Calculations

• Hauser's Law (2009)
• Is Hauser's Law Still Valid? (2011)
• Hauser's Law, Updated for 2019
• Hauser's Law in Action: 1946-2025

The median price of new homes sold in the United States paid by their buyers is declining.

Incentives provided by homebuilders to entice sales is offsetting an increase in mortgage rates in recent months, improving the affordability of new homes. So much so that new homes have become relatively more affordable than existing homes.

Here are the three numbers that define how affordable a new home is for a typical American household in July 2026 and how they've changed from the values we reported for May 2026:

• Median new home sale price: $393,800 (decrease of $31,100)
• Median household income: $88,150 (increase of $504)
• Average 30-year conventional fixed mortgage rate: 6.54% (increase of 0.10%)

Assuming a 0% down payment, a new home sold in July 2026 at the nation's median sale would have a mortgage payment that consumes 34% of the income earned by a household at the exact middle of the U.S. spectrum of income. The following chart reveals the typical new home sold in the U.S. moved to fall within the affordable reach of the typical American household during July 2026:

The relative affordability thresholds indicated on the chart are defined by the 28/36 rule that mortgage lenders traditionally use to determine whether to extend a mortgage to new home buyers. Here, a monthly mortgage payment that consumes more than 36% of a household's income means that the median new home sold is fully outside the affordable reach of a household earning the median income, even if it has no other debts. At the other end of the rule, a mortgage that does not exceed 28% of a household's income is considered affordable even with average levels of other kinds of debt.

July 2026's relative affordability level falls between these two levels, but nearer the upper end, which means a new home is affordable for a household earning the nation's median household income provided it maintains a low level of other kinds of debt.

References

U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 25 August 2026.

U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [Excel Spreadsheet]. Accessed 25 August 2026.

Freddie Mac. 30-Year Fixed Rate Mortgages Since 1971. [Online Database]. Accessed 1 September 2026. Note: Starting from December 2022, the estimated monthly mortgage rate is taken as the average of weekly 30-year conventional mortgage rates recorded during the calendar month.

Image Credit: Couple sitting among moving boxes in new home photo by Vitaly Gariev on Unsplash.

The S&P 500 (Index: SPX) rebounded back above its mean trend in August 2026 after briefly breaking below it.

Through the end of trading on Monday, 31 August 2026, the index' value was just slightly below its its trailing 20-day moving average. Meanwhile, the moving average itself was about 96 points (or about 1%) above the level the mean trend trajectory the index has established during its current period of relative order, which has largely held in the 32 months since 31 December 2023.

The following chart visualizes the relationship between the value of the S&P 500 and its underlying trailing year dividends per share from 29 December 2023 through 31 August 2026:

Previously on Political Calculations

• How Big is the AI Bubble and Is It Really a Bubble?
• The Definition of a Bubble
• The Ultimate Sell Signal
• What Caused the Dot Com Bubble to Begin and What Caused It to End?
• The Black Monday Stock Market Crash Explained
• Not Necessarily Wrong But Useful

Image Credit: Microsoft Copilot Designer. Prompt: "An editorial cartoon of a Wall Street bull and bear bouncing on a trampoline while looking at a stock chart labeled 'S&P 500'".

Motio Research's initial estimate of U.S. median household income for July 2026 is $87,810, a $300 (or 0.34%) decrease from the firm's initial estimate of $88,110 for June 2026.

Here are screenshots of the interactive charts Motio Research provides to visualize trends in the U.S.' median household income. The first chart presents the firm's Household Income Index, which is based on three-month moving average that sets the period of January 2010 through March 2010 at a value of 100 after making adjustments for inflation and seasonality in the data. The second chart presents their monthly median household income estimates in nominal (not adjusted for inflation) terms for the period from January 2010 through July 2026.

Monthly Household Income Index

Median Household Income Estimates

Here is Motio Research's commentary for July 2026, in which they raise an alarm for seeing their median household income estimates and index record their second decline in as many months:

Motio's original monthly headline series, which begins in 2010, includes Census-imputed income data and shows a recent deterioration in the income level.

Nominal median household income fell 0.3 percent in July to $87,810, its second consecutive monthly decline. The combined June–July fall of 0.6 percent was the second-largest two-month decline outside the pandemic disruption in the series, exceeded only in May–June 2010, when household income was still contracting in the aftermath of the 2007–09 recession.

Real median household income fell 0.7 percent in July to $88,060, following a 0.5 percent decline in June. The U.S. Real Median Household Income Index fell to 118.0.

“These readings do not establish a formal turning point,,” said Romina Soria, co-founder and principal economist at Motio Research. “But year-over-year growth in real household income has slowed to nearly zero, while both real and nominal income have now fallen for two straight months. The next releases will show whether household income rebounds or continues to weaken.”

Since Motio Research's estimates are derived from survey-based data, it's possible they're seeing some noise from turnover in the sampled population being surveyed each month. It's more likely however the survey-based data is capturing changes that the data Political Calculations uses to derive our complementary estimates of median household income is slower to register.

At least, that's our experience from seeing our estimates lag behind the upward surge the Motio's survey-based estimates recorded a year earlier. We'll see if that pattern continues with next month's data releases.

Analyst's Notes

As we mentioned, Political Calculations produces monthly median household income estimates using an alternate methodology that complements Motio Research's survey-based estimates. In July 2026, Political Calculations' initial estimate of median household income is $88,150. This estimate is $216 (or 0.25%) higher than our initial estimate of $87,934 for June 2026's median household income.

The following chart presents our estimates of U.S. median household income, both adjusted for inflation (blue) and not-adjusted for inflation (red) for each month from January 2000 through July 2026.

Political Calculations' July 2026 estimate is $340 (0.4%) below Motio Research's estimate of $87,810 for the month. While we're still seeing our median household estimates rise, as opposed to the declines Motio Research has registered in their estimates during the last two months, we are seeing the rate of increase of our estimates slow. The change represents a negative change in momentum for median household income and is a cause for concern.

References

U.S. Bureau of Economic Analysis. Table 2.6. Personal Income and Its Disposition, Monthly, Personal Income and Outlays, Not Seasonally Adjusted, Monthly, Middle of Month. Population. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 28 August 2026. Accessed: 28 August 2026.

U.S. Bureau of Economic Analysis. Table 2.6. Personal Income and Its Disposition, Monthly, Personal Income and Outlays, Not Seasonally Adjusted, Monthly, Middle of Month. Compensation of Employees, Received: Wage and Salary Disbursements. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 28 August 2026. Accessed: 28 August 2026.

Image credit: U.S. Census Bureau. We modified the public domain image to make it more generally applicable beyond reporting the median household income from 2022.

The S&P 500 (Index: SPX) closed the trading week ending Friday, 28 August 2026 at 7,711.76, up 0.4% from where it closed out the preceding week.

The biggest market moving event of the week came on Friday, as the new chair of the Federal Reserve spoke at the Fed's annual retreat in Jackson Hole, Wyoming. Warsh had one message he wanted to deliver, which was the Federal Reserve would act to hike interest rates while inflation in the U.S. exceeded the Fed's target for it.

That message affected investor outlook for rate hikes. The CME Group's FedWatch Tool moved up the timing of when it expects the Fed will hike the Federal Funds Rate since the previous edition of the S&P 500 chaos series. It now projects the Fed will hike this base interest rate by a quarter percent on 16 September (2026-Q3), three months sooner than anticipated a week earlier.

The FedWatch Tool now also gives a better than 50% chance the Fed will follow up with another quarter point rate hike after its 9 December (2026-Q4) meeting.

Looking further forward, having the two rate hikes in 2026 drops the likelihood of any additional rate hikes in 2027 from the FedWatch Tool's outlook. The latest update of the dividend futures chart shows investors maintained their forward-looking focus on the upcoming future quarter of 2027-Q1, however if just given the week's news, we think it would be very likely that investors are shifting their forward-looking attention to the nearer term future of 2026-Q4.

For the near term future trajectory of the S&P 500, that Lévy flight event would be accompanied by a relatively modest change in stock prices, assuming no other new information arrives to prompt investors to shift their investment horizon back out to a more distant future quarter. Which if it were significant enough, would be accompanied by a more significant upward movement in stock prices according to the dividend futures-based model's projections.

Such a move could be driven by something like the unexpected after-the-closing-bell news of the Trump administration's deal with Venezuela to secure control of more than 65 billion barrels of oil, for example. We'll be covering the impact of that news in next week's edition.

There's a lot that hinges on the random onset of new information that affects investor expectations for the future. Speaking of which, here's an example of what that kind of information looked like during the past week.

Monday, 24 August 2026

• Signs and portents for the U.S. economy:
• US hits Canadian goods with 50% tariffs after trade talks fail
• Canada to retaliate for US tariffs, worsening ties after talks fail
• Trump threatens 50% tariffs on all cars and trucks from Canada amid trade fight
• U.S. Trade Rep Greer blames Canada for failed tariff talks: ‘They wanted more’
• Oil drops more than $2 despite new US sanctions on Iran
• US threatens countries doing business with Iran, but holds off on penalties for now
• Fed minions not so worried about rising interest rates on U.S. Treasuries, new Chief Minion faces first big test:
• Fed's Kashkari not worried about rising US Treasury yields
• Bond market anxiety raises stakes for Warsh's debut Jackson Hole speech
• Bessent could tap near $1 trillion Treasury General Account to fund bond buybacks, sources said
• Chief ECB minion getting ready to jump ship and cash in on job she's long coveted:
• ECB chief Lagarde 'ready to serve' WEF, Swiss newspaper reports
• S&P 500, Nasdaq end down on tech stocks, investors weigh Iran moves
• Stock market ends mixed as tech stocks, yields slide
• Bitcoin jumps 3%, closing in on $80,000 as rally gathers pace
• Gold hits over three-month high on dollar weakness, Treasury bond buyback plans

Tuesday, 25 August 2026

• Signs and portents for the U.S. economy:
• Why the bond market may be resetting expectations about the US
• US Treasury to stick to debt auction schedule despite bigger buybacks, Bessent says
• US Treasury buybacks a 'mistake' costing credibility, says Druckenmiller
• Oil hits one-week low as investors shrug off US sanctions on Iran
• July new home sales miss estimates
• Fed minion wants higher interest rates in U.S.:
• US rates need to rise soon absent evidence of ongoing drop in inflation, Fed's Collins says
• Four Fed bank boards wanted rate hike, minutes show
• Bigger trouble, stimulus developing in China:
• China credit slump could hit U.S. stocks, Société Générale’s Albert Edwards warns
• US eyes China overcapacity tariffs of 7.5% before Xi-Trump talks, Bloomberg News reports
• China's $119 billion policy financing tool begins project applications, faces roll-out lag
• BOJ minions getting excited to hike Japan's interest rates again:
• BOJ to speed up its tightening campaign, raise key rate to 1.25% in September
• Japan's corporate services inflation accelerates in July
• Wall Street ended higher ahead of Nvidia earnings and key inflation data
• Wall Street ends higher as tech rebounds before Nvidia results

Wednesday, 26 August 2026

• Signs and portents for the U.S. economy:
• US inflation remains elevated as GDP growth outlook brightens
• Core PCE inflation rises as expected in July, headline PCE accelerates
• Americans’ spending outpaces income for record 25 months
• Mortgage rates hit highest level in 3 weeks, weakening demand further
• Canada slaps retaliatory tariffs on US goods as trade war intensifies
• Oil prices slide 2% on Iran-Oman talks to reopen Strait of Hormuz
• Bond rout ending? Massive bets on bond rally dominate options market
• Fed minions only a bit more likely to hike U.S. interest rates:
• Fed seen a bit more likely to hike after inflation data
• Bigger trouble developing in China:
• Bill Gates, alarmed by AI, has policy ideas he wants to discuss with China's Xi
• ECB minions want one more interest rate hike in Eurozone:
• Interest rates must rise further on inflation risks, ECB's Schnabel tells Bloomberg
• ECB set for September rate hike with no appetite to signal more, sources say
• Wall Street edged lower after inflation data and ahead of Nvidia earnings
• Wall Street stocks end tad lower after hot inflation data ahead of Nvidia earnings

Thursday, 27 August 2026

• Signs and portents for the U.S. economy:
• Nvidia forecasts 70% sales growth next year, signals AI spending boom has years left to run
• Oil gains as traders weigh prospects of Hormuz reopening
• OPEC+ loses oil market sway in Iran war as China gains influence
• New Chief Fed minion has got some problems:
• Fed's Warsh faces challenge whether inflation is a problem or not
• Bessent, Warsh diverge on who should set the price of money
• As Jackson Hole conference kicks off, three Fed officials issue inflation warnings
• Fed's Collins says latest US inflation readings are 'mixed'
• Fed's Hammack tells Fox Business inflation likely to ease slowly
• BOJ minions getting excited to hike Japan's interest rates some more:
• BOJ deputy governor Himino calls for 'timely' rate hike
• ECB minions see growth signs in Eurozone, want to hike interest rates:
• Euro zone lending growth picks up, ECB says
• ECB saw a further hike as likely at July meeting
• Wall Street ended higher after Nvidia results as eyes turn to Jackson Hole
• Nasdaq, S&P 500 lifted by Nvidia's forecast; investors eye speech by Fed's Warsh
• Nvidia ignites chip stock rally as forecast shows AI boom is intact
• Nvidia forecasts 70% sales growth next year, signals AI spending boom has years left to run

Friday, 28 August 2026

• Signs and portents for the U.S. economy:
• US employment growth only modestly lower than thought in BLS revision
• Oil prices fall for the week on U.S.-Iran talks stalemate
• New Chief Fed minion says to expect hikes if inflation stays above minions' target:
• Warsh signals Fed may need to hike rates if above-target inflation persists
• Warsh's 'quieter Fed' now includes a smidgen of guidance
• VIEW Rate-hike expectations rise on Warsh speech at Jackson Hole
• The August Labor Market Report To Cement The September Fed Hike
• Mixed growth signs, stimulus developing in China:
• China's factory activity seen contracting again in August
• China’s largest five banks report strongest first-half profit since height of property crash
• China home prices seen falling slightly less this year, property investment slump deepens - Reuters poll
• China to reform home sales system to curb delivery risks
• Shanghai plans subsidies to kick start dormant offshore debt market, sources say
• BOJ minions excited to see Japan's inflation near their target, even more excited for chance to hike interest rates again as they tally the cost of propping up the yen:
• Tokyo core inflation creeps near BOJ's target, bolsters rate-hike chance
• Japan spent record $96.5 billion to support yen over past month, ministry data shows
• ECB minions worried about missing out on blockchain:
• ECB should embrace blockchain to safeguard its role, Schnabel says
• S&P 500 falls Friday after Fed’s Warsh highlights inflation worries, but index posts positive week
• Wall Street ends lower after Fed Chair Warsh reaffirms inflation fight
• Stocks close lower as Warsh vows to bring inflation down
• S&P 500 posts weekly gains as Nvidia fuels renewed AI rally

The Atlanta Fed's GDPNow tool projects +4.6% real GDP growth for the U.S. economy in 2026-Q3, rebounding from the +4.0% annualized growth it forecast a week earlier.

Image credit: Microsoft Copilot Designer. Prompt: "An editorial cartoon of the new Federal Reserve chief pointing to a PowerPoint slide that shows a train labeled 'RATE HIKES' heading toward a Wall Street bull tied to railroad tracks by a villain holding a sign that says 'INFLATION ABOVE TARGET'." We had to add a follow on prompt to "make the Fed chief look like Kevin Warsh" because the AI image generator is still defaulting to a caricature of Jerome Powell.