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Taxing Sports
2008-11-04 22:02
by Will Carroll
Notes:
Scott Long is now blogging at NSFWsports.com.
Will Carroll can still be found at Baseball Prospectus.

This article gives some great examples of what this tax increase on the wealthy really looks like. To a player making $10 million a year, the proposed change of the tax rate would cost them about $400 thousand a year. That means Derek Jeter will pay about $900 thousand on his $20 million '09 salary. That's six games worth of pay, more or less.

Continuing to use Jeter as the example here, he now pays a 35% tax rate. Ignoring the deductions and other methods of reducing the tax burden as well as his other income, Jeter pays $7 million in federal income tax. That's a LOT of money, no doubt about it. I'm sure, somehow, Jeter will be able to make it without too big a hit on his lifestyle. Instead of pocketing a post-tax $13 million, he'll have $12 million.

But what if you're a normal American, not a Yankee. Well, you probably have more range, but that's another discussion. If you make $50,000, you'd be taxed at the current 28% rate, giving $14,000 to the IRS, again before deductions and other reductions. So you tell me, is it fair that someone making more is being taxed more? I'm not sure, but I'd guess that the effect is less. That $900 thousand isn't going to keep Jeter from eating, from buying a house, from paying his heating bill, or from jetting off to the Caymans with his hottie du jour. I'm not buying that it's patriotic, as Joe Biden suggested, but it's logical.

Comments
2008-11-05 00:20:10
1.   Ali Nagib
Just some Random Yankee Trivia: In 1959, Mickey Mantle made $70,000. If he'd made over the top income tax rate at the time ($400,000), which we can probably assume he would if he'd played under 2008 CBA rules, he'd have paid 91% federal income tax.

http://theswearingens.com/mick/salary.htm
http://www.truthandpolitics.org/top-rates.php#fn-7

2008-11-05 04:59:12
2.   jgpyke
I think the problem is more fundamental than what you suggest, WC. It goes beyond whether Jeter is capable of paying it or whether he'll notice it. Those are not criteria of "fairness," but it goes to the false belief of "social justice." Who was it, Tim Russert, that asked Obama about lower taxes were proven to increase revenues...and that if he raised taxes they would drop...would he still support the tax raise? Obama said yes, he would. So to Obama, taxes are a good in and of themselves, regardless of their fiscal impact to the govt balance sheet. IOW, the thing that is most important that people are taxed at a greater rate.

Of course, BHO could prove us wrong and turn out to be a moderate. We'll see.

2008-11-05 05:19:45
3.   lentnej
One idea behind the progressive income tax rate "it is a lot easier to make your second million than your first," makes for an obvious example in baseball. Look at all the minor leaguers working hard just to make a little money. Then when you get to the big leagues you have to work hard to stay there, making the minimum. But once you are an established star like Jeter, you sign guarenteed contracts and make millions no matter how good you are subsequently. And, because the money is guarenteed, you not only don't have to work as hard, you literally don't have to work for it at all! (See Albert Belle.)
Take taxes out of it and look at filling up your tank with gas. Say it costs $50 and goes up to $60. Who can afford that 20% increase more easily- the millionaire or the middle class American making $40K?
2008-11-05 05:39:03
4.   jgpyke
If I were a highly paid athlete, I would be renegotiating to take a huge signing bonus before Jan 1 and minimal salaries until Jan 2013, when a balloon payment would kick in (with a delay clause until 2017 if needed).
2008-11-05 05:44:06
5.   David Arnott
2 -- Without knowing the context of the conversation, I suspect Obama was making the point that total economic growth doesn't really mean a damn to him if it's concentrated among the already wealthy. Unlike McCain, Obama addresses the middle class directly. We can argue about whether his proposed policies will help the lower and middle classes, but there's very little doubt that given a choice, he'd rather bring the bottom up than raise the ceiling at the top.
2008-11-05 09:05:47
6.   jgpyke
5 It wasn't economic growth but govt revenues. Period. An increase in cap gains tax means a decrease in govt revenues, and he didn't care. He would sooner plunge us further into debt, presumably, just to increase taxes on the wealthy.
2008-11-05 12:29:29
7.   Todd S
I do not find this logical. At all.
2008-11-05 14:11:41
8.   Linkmeister
6 "An increase in cap gains tax means a decrease in govt revenues"

Does not compute.

An increase in receipts equals a drop in revenue?

You, sir, fail arithmetic. Did you mean an increase in cap gains tax rate? If so, your statement might theoretically be true.

2008-11-05 16:30:52
9.   Ken Arneson
2 It was Charlie Gibson who asked that question, and he didn't ask it with a "if it could be proven" prefix, he simply asserted that tax cuts increase revenues based on a sample size of two examples, and Obama rightly denied the premise.

Y'all need to read about the Laffer Curve:
http://en.wikipedia.org/wiki/Laffer_curve

The idea is that if the current tax rate is lower than optimal, then a tax increase increases revenues. If the current tax rate is at or higher than optimal, tax increases decrease revenues.

So, by this theory, if you want to maximize government revenues, you shouldn't just blindly cut or raise taxes. You should first calculate the optimal tax rate, where the top of the Laffer curve is, and then cut or raise taxes accordingly.

2008-11-05 17:10:39
10.   Xeifrank
I believe that Obama's tax plan and philosophy is a form of reparations. Remember Obama said that "[when it comes to] reparations, the most important thing for the U.S. government to do is not just offer words, but offer deeds.", aka - wealth redistribution.

vr, Xei
2008-11-05 17:35:23
11.   stevegoz
Will, you're a smart man.

So I would expect you to know that being in the 28 percent federal income tax bracket doesn't mean that you pay 28 percent of your income in taxes. (No, I'm not talking about the "before deductions and other reductions"; I'm talking about the cumulative manner in which tax brackets work.)

Also, the 28 percent bracket applies starting at $78,850 for singles in 2008.

Your imaginary boy making $50k in the present time would first pass through the 10 and 15 percent brackets before entering the 25 percent bracket at $32,550. He would pay 25 percent on his income over $32,550 plus $4,481.25 from the two lower brackets. Grand total, $8,843.75. (Makes the actual present-day tax plan far friendlier than the Will Carroll one!)

For an athlete earning eight figures, your example is much less wrong, as the 35 percent bracket kicks in for singles at ~$357k.

Sorry, but I just hate when illustrative examples get things so wrong.

2008-11-05 20:15:49
12.   jgpyke
9 Sorry, Ken, but you've mischaracterized my comments. And I know all about the Laffer curve.

"GIBSON: All right. You have, however, said you would favor an increase in the capital gains tax. As a matter of fact, you said on CNBC, and I quote, "I certainly would not go above what existed under Bill Clinton," which was 28 percent. It's now 15 percent. That's almost a doubling, if you went to 28 percent.

But actually, Bill Clinton, in 1997, signed legislation that dropped the capital gains tax to 20 percent.

OBAMA: Right.

GIBSON: And George Bush has taken it down to 15 percent.

OBAMA: Right.

GIBSON: And in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down.

So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?

OBAMA: Well, Charlie, what I've said is that I would look at raising the capital gains tax for purposes of fairness."

Shorter version:
GIBSON: The Laffer Curve is real and lower taxes increase revenues. It's been proven in both Republican and Democrat administrations.

OBAMA: Don't confuse me with the facts. I've been sucking at the Marxist teat since undergrad. Didn't you read my two memoirs?

2008-11-05 21:09:11
13.   Will Carroll
11 - I realize mine was a vast oversimplification, but you're right, I should have been more clear.
2008-11-05 21:27:41
14.   chris in illinois
12 The majority of the 100 million stock owners own them through 401k plans making Capital gains taxes irrelevant to most people. These are long term stock holders, not opportunists that have to worry about their gains getting taxed.

Quit the Marxist crap already, if Obama was a Marxist there would be dead bodies everywhere after last night. If he's a Marxist, your precious GOP is too.

It's also pretty clear that the revenue increase that occurred when Bush dropped the rate to 15% was not a result of a lower tax rate, but rather a result of an unsustainable housing bubble reflected in a DOW that cracked, what, 14000 points. If the tax rate is responsible for the increase in revenue, we should see a great year in revenues due to the capital gains tax in 2008, right?? The rate has stayed the same, so it shouldn't matter that we've lost 30+% of the value of the market.

2008-11-06 05:37:11
15.   jgpyke
14 The point was: his thoughts on the capital gains tax were based purely on "fairness," not revenues.

Regardless, you showed more analysis in your post than Obama did that debate. Hats off to you, sir.

2008-11-06 19:35:43
16.   TFD
chris.....you exhibit the patience of job...

btw...twins v cards this summer in STL! see you at BuschII?

2008-11-07 19:01:12
17.   chris in illinois
16 TFD, End of June...v e r y possible. There's a great chance that I can get some decent seats for free. I won't know until March or so, but I can usually get some seats gratis for a game or two. Are they in Wrigley this year??

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