Celebrities and Incentives

At the London Olympics, the IRS taxed gold medalists $8,986 for their victory.  When Phil Mickelson, an American, won the Scottish Open, he immediately owed the British government more than 60% of his winnings.  Afterward, he said “it’s not making me want to go out and work harder.”  He also made news for considering a move out of his home state of California because of their high income taxes.  Rangers OF Shin Soo Choo turned down a 7 year, $140 million contract from the New York Yankees for a 7 year, $130 million one with the Texas Rangers.  The primary reason?  After taxes, the Rangers contract nets him significantly more money.  The soccer team AS Monaco, which plays in the top French league, gained a leg up on the competition because they are not subject to the exorbitant French income tax on high earners.  The Monaco taxes, by contrast, attracted many of the world’s top soccer players.

So why am I listing all of these examples?  It’s not to say we need to lower taxes for the rich (although I haven’t ruled out that it might be beneficial).  No, it’s to illustrate that no one is immune to incentives.  One of the beauties of our federalist system is that it creates a sort of competition between the states.  If Phil Mickelson doesn’t like his tax rates, he can move.  If enough people leave, the states will (hopefully) notice.  For a real-world example of this, we can look no further than France.  Demonizing the rich is low-hanging fruit, but you don’t realize what they offer until they’re gone.  At the end of the day though, we’re humans and they’re humans.  And they’ll respond to incentives just like we do.