I recently learned that Dwayne “The Rock” Johnson charges studios a $1 million social media fee to advertise his own movies on his own social media accounts. And why shouldn’t he? He’s playing — wisely — by the rules of the game. The 10 highest earning actors for 2017 earned a combined $488.5M.
Similarly, the 10 highest earning NBA players in 2018, from both salaries and endorsements, will earn $493M. An average of $49.3M per player.
The convergence of American entertainment with (relatively) free markets produces massive bidding-wars. Whether it’s a team courting a player or studio courting an actor — and these are only two examples — the lavish sums exchanged in such markets appear unreal to most working-class Americans. The following headline, though it reads like an Onion article, ran on CBS last year:
Report: Warriors’ Kevin Durant makes huge sacrifice, agrees to two-year, $53M deal
This isn’t meant to condemn earners. Wealthy athletes and actors are among the most visible, and usually impactful, philanthropists. Though foundations are excellent tax shelters — laudable places to store money that one might not otherwise know what to do with — they also symbolize the good intentions of many high net-worth individuals.
But is there a better way to derive social value from these massive markets? What did Kevin Durant’s life really lose by agreeing to a meager $53M deal, $9.5M less than the max deal he could’ve asked for?
A Proposal Towards Universal Basic Income
Set some reasonable, hefty number, say $10M . After any athlete or actor’s first $10M in salary, we could hike the tax rate from the 39.6% they pay as top-bracket earners to some higher percentage, like 65%. Or even 80%.
High-earners in these markets would still earn just the same up to $10 million, and how much good does additional money do a person after that? Nobel laureate Daniel Kahneman found that after $75,000, emotional well-being stops responding to higher incomes.
Neither would the incentive for teams and studios to offer progressively larger sums of money disappear. The market structure would remain mostly intact, there’d just be less incentive upon contracts that extend beyond, in this example, $10M. Incentives beyond finances would gain weight (like a team’s culture, or a movie’s message).
An astronomical tax rate for astronomical earners is not unprecedented (nor is 65% astronomical, comparatively). The 60’s levied an infamous 92% marginal rate on the top tax bracket. Back then, there were maybe 10,000 families with incomes high enough to qualify for this ‘confiscatory top rate’. That qualifying income, in today’s dollars, was over $2M. Today, the top tax bracket includes around 1 million Americans, and the threshold for that group is $415,000. We — and I find this peculiar — tax earners of $500,000 the same as $500M.
Why Only Athletes & Actors?
States have attempted to raise taxes on athletes with something called the jock tax. It’s a state tax that charges out-of-state players for income they make on the road. This tax is burdensome, convoluted, arbitrary, and petty. It was first enforced by California, whose 1991 LA Lakers lost to the Bulls in the finals that year. In retaliation, they imposed this jock tax for the first time on the Illinois-based Bulls. Illinois fired back, imposing their own jock taxes only on players coming from states who, in turn, enforce the tax on Illinois-based players. Tax policy probably shouldn’t be born out of a bitter NBA finals series. We can devise better policies.
And why should athletes and actors be singled out, subject to different tax policies than other Americans earning similar amounts?
Under current laws, if athlete X earns $50M, she pays a flat rate of 39.6%, or $19.8M in taxes, leaving a post-tax income of $30.2M. If a marginal tax rate of 70% were imposed on incomes above $10M, she would now pay $31.96M in taxes, and make about $18M. How much worse off is a person earning $18M than $30.2M? It’s an open question. I’d like to hear what these individuals think. Whether or not it’s a good idea also hinges upon what’s done with that additional tax revenue.
There’s a widespread distrust of governmental efficiency. Americans, more than other countries, feel they receive meager value per tax-dollar paid to the government. And, as Denmark figured out, the more directly tax dollars improve quality of life, the higher taxes citizens are willing to pay. This is why Danish citizens happily pay an average rate of 45%, with high-earners paying more.
Imposing these rates upon high-earning Americans might stoke feelings of loss, even theft. But the idea of taxes isn’t merely to give the government money, it’s to give the public value; an investment in society, directly purchasing quality of life. It’s a sad reflection on the state of taxes, and government, when taxes are thought of as losses, as opposed to purchases.
Universal Basic Income
As a remedy, what if every dollar of tax revenue earned from this hypothetical tax on mega-wealthy individuals went towards funding Universal Basic Income? Would heavily-taxed people then feel their money was going towards a good cause, delivering society — especially those worse off — a tangible value that American government largely fails to?
Rather than starting foundations to make use of their money (imagine the greed Lebron James would be accused of if he didn’t engage his earnings in philanthropy), high-earning individuals could simply keep earning (if they so choose), knowing that doing so provides immense social value. Individuals who start foundations would then be doing so of an autonomous desire to focus their money on a particular cause, rather than financial necessity (tax shelter, social pressures), which would do wonders for the efficacy and passion of foundation missions.
Currently, the top 10 actors and athletes alone would contribute $547M to the UBI fund annually. This is 20 individuals. In 2010, it was estimated that 2,000 individuals earned over $10M. Extrapolating, this yields a rough estimate of $54.7 billion towards the UBI fund from this tax policy alone, and this estimate is dramatically low. Bill Gates alone would contribute ~$7.9 billion to the fund, annually. Mark Zuckerberg is also on board, as he said during his Harvard commencement speech:
These numbers used — $10M and 70% — are arbitrary. Better numbers can be worked out by teams commissioned for the task.
There are also details that’d need consideration. Maybe some caps would be necessary, or exceptions, or unthought-of details. Figuring out nuances that turn public principles & ideas into feasible policy is the work of governmental organizations.
This is just another possible funding source for UBI, perhaps to be considered with Scott Santens’ list that includes welfare reform, financial transaction taxes, VAT’s, carbon fees, etc. Talk of Universal Basic Income is heating up, but specific funding proposals are lagging behind. Keeping the two in tandem keeps the debate robust, and actionable.