Baseball and the Tax Man
There are fair and reasonable questions to be asked of any society that so deifies its celebrities and athletes the way that ours does. And we've also heard the "But baseball players and movie stars make so much, and teachers so little" arguments and, more than likely than not, have uttered a few of them ourselves. Again, these are fair and reasonable arguments to make and questions to ask.
But there are other questions to raise–questions relating to the impact that things like higher taxes can have on the economy by impacting families and small business—and the bank accounts of the rich and famous can potentially help us think them through in clearer terms.
President Barack Obama's victory over Mitt Romney was of as much interest to baseball's money men as the game scores, given the millions of dollars routinely guaranteed in player contracts these days…
This much is known for now: Starting Jan. 1, there is an additional 0.9 percent Medicare tax on wages above $200,000 for individuals and $250,000 for married couples filing jointly under the federal Affordable Care Act, a rise to 2.35 percent.
In addition, the Bush tax cuts are scheduled to expire at the end of the year, which could raise the highest marginal federal tax rate from 35 percent to 39.6 percent — although a deal between Obama and Congress could change that.
Okay, but who's going to lose any sleep over higher rates and bigger checks to the government from pampered athletes playing a kid's game, right? It's all chump-change to these big-shots anyway, no?
According to an analysis done by a tax lawyer on the staff of agent Scott Boras, a player with a $10 million salary and average deductions who plays in Florida and is a resident of that state will see his taxes rise from $3.45 million this year to $4.09 million next year under current law. If traded to the Blue Jays, that player's 2013 tax would rise to $4.27 million. And if dealt to a California team, the tax would go up to $4.4 million.
Follow that? If a player is on a team in Florida–the Marlins or the Tampa Bay Rays–his taxes would be $3.45 million this year. But with one click of a GM's mouse, with one text message from Billy Beane in Oakland, that same player can end up paying essentially one million dollars more for no reason other than that California has spent itself into fiscal oblivion and needs more money to keep the "chill vibes" on the West Coast flowing.
Alright, so there are a few additional reasons that can be added to the one I just mentioned. But you get my point.
I'm not here trying to solve the cultural and moral quandaries that may arise in your conscience from hero-worship aimed at celebrities and entertainers. I'm not here to say that really good teachers and brave civil servants who protect us don't "deserve" more.
But we should think about the implications these exaggerated numbers have on your own paycheck and your own life. On the lives of business-owners in your area. On the viability of a start-up that is barely squeaking by. On the ability of an established company to hire even more people, allowing individuals on unemployment or government assistance to support themselves.
Taxes and tax rates matter. They carry incentives that will invariably affect human behavior. And not just for Gold Glove winners.