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New York Occasions Op-Ed: The Financial Case for Taxing Star Athletes, by Peter Coy:
OK, it’s time for an additional spherical of “Are Star Athletes Overpaid?” I hope to deliver some financial concept to bear on this well-worn query. …
The perennial query is why [star] athletes are being paid a lot greater than docs, scientists and designers, not to mention nurses, schoolteachers and firefighters. … Economists have a well-known clarification: provide and demand. The provision of star athletes is extraordinarily restricted, to allow them to demand a excessive worth for his or her (nonessential) providers. …
Usually that is the purpose the place the talk ends, with economists feeling they’ve received the argument and people who disagree with them remaining distinctly unhappy. So let’s take it slightly additional.
Star athletes work arduous, however they’re additionally fortunate. They’re fortunate to have been genetically gifted with power, velocity and coordination. And so they’re fortunate that these qualities are extremely valued in fashionable society: Athletes with these items can win; followers like winners; and the growth of televised sports activities has vastly elevated the variety of followers who pay, straight or not directly, to look at them win.
The economists Sherwin Rosen and Allen Sanderson put it this fashion in a seminal article in 2001 in The Financial Journal: “A star participant is price only some {dollars} extra per spectator than an odd participant. There are many spectators.”
This previous weekend I interviewed the economist Stefan Szymanski of the College of Michigan, who instructed me that he commissioned the article by Rosen and Sanderson whereas serving as a visitor editor of The Financial Journal. Rosen was an apparent alternative, Szymanski stated, as a result of he had written a well-known article in 1983, “The Economics of Superstars.” Its first sentence: “Who in recent times has not felt his gorge rise upon studying the staggeringly excessive wage of a shortstop, a film star, an opera singer?” …
People who find themselves appalled by athletes’ large paychecks aren’t any happier seeing the house owners hold all the cash. Is there no different alternative?
Really, there may be, Szymanski instructed me. It goes again to the pure endowments that star athletes have. Consider these endowments like good agricultural soil. The one who is fortunate sufficient to personal probably the most fertile fields will earn rather more cash than somebody who owns a much less fertile subject that’s put into manufacturing because the demand for meals will increase. The house owners of the richest fields, “like all different males, like to reap the place they by no means sowed,” Smith wrote in “The Wealth of Nations.”
Star athletes, just like the landlords of Smith’s day, are reaping the place they by no means sowed. In fashionable financial terminology, they’re incomes “shortage rents” for his or her bodily attributes, Szymanski stated. Financial concept says that taxing such rents is an effective solution to elevate cash as a result of the taxes received’t distort conduct.
Taxes on wage revenue and capital revenue are distortionary as a result of individuals attempt to keep away from them. They cut back their work effort to keep away from wage taxes, for instance. However the capacity to throw an ideal spiral or put a penalty kick previous a goalkeeper is inherent within the athlete, so taxing it doesn’t make it go away. …
Szymanski’s idea is to permit athletes to earn their shortage rents with out restrict, however then tax their ensuing revenue at a excessive fee in order that society as an entire shares of their good luck. And he wouldn’t restrict the excessive tax charges simply to athletes, since individuals in different careers additionally earn shortage rents. He want to see the federal authorities return to the highest marginal tax charges of the Fifties, which in some instances exceeded 90 p.c. “I believe rents in society are an issue,” he stated.
https://taxprof.typepad.com/taxprof_blog/2023/08/ny-times-op-ed-the-economic-case-for-taxing-star-athletes-at-a-94-rate.html
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