Tuesday, January 22, 2013

Do higher marginal tax rates lead superstar athletes to play less often?

Let's think, for a moment, about why people want more money:

(1) To buy stuff.

(2) To keep score.

(3) To accumulate power.

Perhaps there are others, but these seem to me to be the big three.

OK, so there seem to be two kinds of athletes in the world (with respect to consumption):

(I) Those with entourages.
(II) Those without entourages.

It takes an entourage for superstar athletes to spend all the money they make--it would otherwise be hard to spend an eight figure money quickly enough (people can even afford private jets at those incomes).

So let's think about those with entourages.  If their taxes go up, they will actually have to work harder to keep their entourages.  That should mean they play more, not less.

For those without entourages, the marginal utility of consumption must be zero--this is the implication of not being able to spend all your money.  So their incentives must arise from reasons (2) and (3).

Scorekeeping is independent of taxes.  If an athlete wants to say he/she has the most winnings, they will have an incentive to play more games.

That leaves power.  Higher marginal taxes reduce the ability of high income people to accumulate power, which may mean they work/play less.  I don't know that this is entirely a bad thing. 

2 comments:

David Barker said...

The real reason is security, freedom and control, exactly the reasons why academics want tenure.

With enough money, a person can live on the interest and never have to worry about a forced drop in consumption, being fired, or being told what to do.

What would be the reaction if that is taxed away? Probably the same as how professors would react if the value of tenure was reduced by the same amount.

David Barker said...

The real reason is security, freedom and control, exactly the reasons why academics want tenure.

With enough money, a person can live on the interest and never have to worry about a forced drop in consumption, being fired, or being told what to do.

What would be the reaction if that is taxed away? Probably the same as how professors would react if the value of tenure was reduced by the same amount.