People Respond to Incentives – Part the Googolplexth (Golfers Edition)

Economist and Harvard Professor Greg Mankiw isn’t the only one who is thinking about working less in an era of higher marginal taxes.  So are golfers like Phil Mickelson according to a recent story:

“Well, it’s been an interesting off-season, and I’m going to have to make some drastic changes,” said Mickelson, who lives with his wife and three children in Rancho Santa Fe, near San Diego. “And I’m not going to jump the gun and do it right away, but I will be making some drastic changes.”

When asked whether the “drastic changes” meant moving from California to another state or perhaps even country, Mickelson would say only that he was not sure.

“If you add up all the federal and you look at the disability and the unemployment and the Social Security and the state, my tax rate is 62, 63 percent,” Mickelson said. “I’ve got to make some decisions on what I am going to do.” [SNIP]

The subject of Steve Stricker’s decision to play fewer tournaments came up, and Mickelson’s answer was a precursor to his statements here Sunday.

“I think that we’re all going to have our own kind of way of handling things, handling time in our career, our family, handling what’s gone on the last couple of months politically,” Mickelson said. “I think we’re all going to have to find things that work for us. And it’s not surprising at all. It makes perfect sense for a number of reasons, not just the ones that he gave about spending more time at home. I totally get it.”

This is bad news not just for Mickelson, his sponsors, and the PGA, but also for those less-wealthy people who really enjoy seeing golf played at a high level (I’m not one of those people, but many are).  If true, it does bear out Mankiw’s earlier economic reasoning and confirms for the googolplexth time (love the word, Jason!) that people respond to incentives.

Here is what Mankiw controversially (and a bit self-indulgently) argued in the New York Times in 2010:

Now you might not care if I supply less of my services to the marketplace — although, because you are reading this article, you are one of my customers. But I bet there are some high-income taxpayers whose services you enjoy.

Maybe you are looking forward to a particular actor’s next movie or a particular novelist’s next book. Perhaps you wish that your favorite singer would have a concert near where you live. Or, someday, you may need treatment from a highly trained surgeon, or your child may need braces from the local orthodontist. Like me, these individuals respond to incentives. (Indeed, some studies report that high-income taxpayers are particularly responsive to taxes.) As they face higher tax rates, their services will be in shorter supply.

Reasonable people can disagree about whether and how much the government should redistribute income. And, to be sure, the looming budget deficits require hard choices about spending and taxes. But don’t let anyone fool you into thinking that when the government taxes the rich, only the rich bear the burden.

Of course, I’d rather see Lefty (and Mankiw) join the Free State Project and move to a low tax state like New Hampshire rather than play less golf.  But if there is one thing NH doesn’t have that California does is weather conducive to playing a lot of golf!  Plus his family and his life is in California, so exit is not as robust an option.  Still, it is sad that the government consistently forces people to make trade-offs that make us generally worse off.

Live free or produce less wealth!

7 thoughts on “People Respond to Incentives – Part the Googolplexth (Golfers Edition)

  1. Phil Mickelson’s true tax rate is 62%? My significant other is a CPA and director of tax for an oil company doing business in multiple states around the country. I showed her that quote and she literally burst into laughter.

    1. Yeah, his marginal rate is probably somewhere just south of 50, combining federal and state. He was likely adding in self-employment taxes, which do take a huge chunk below… what is it? $110000?… but the top marginal rate of which is zero.

      1. The point was that increases in tax has a bite? Phil Mickelson doesn’t need to make stuff up to prove that point. That’s common sense.

        However, while he most likely has a higher rate than I do, there is no way on earth it’s 62%, or even close to that.

        There are much better ways to make the case against tax increases.

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