23 September 2011
A man hears what he wants to hear
Tax reform proposals dominate the news right now. Much of the analysis fails to highlight the risk of unintended consequences. One example of this risk was the way that higher rates disincentivised income creation in turn reducing the overall tax take. Before we go too far down this line of thinking and end up in the epitome of stupidity that is otherwise know as Art The-biggest-moron-that ever drew-breath Laffer's theory that the optimum tax rate bat which the highest tax would be raised was in fact zero per cent, let's take a quick look at some interesting observations by Tyler Cowen on marginalrevolution.com. Cowen notes that tax policies had a major impact on the history of world boxing titles. In the 1950s the 90 percent top marginal tax rate was a major disincentive to the potential bouts that could have been staged. Once live gate receipts for top championship fights were supplemented by broadcast rights (initially from closed circuit telecasts to movie theatres) a single fight could generate enough revenue to propel a topline fighter into the highest marginal rate bracket. Once that threshold had been passed and all incremental revenue was liable to 90% tax, there became little reason for top boxers to agree to a second fight that would yield very little additional after tax income and was therefore hardly worth the risk of losing the title. Consequently the three fights between Floyd Patterson and Ingemar Johansson stretched over three years from 1959 to 1961 whereas the two between Patterson and Sonny Liston consumed 1962 and 1963. 1964 saw Liston lose his title to Cassius Clay but then the Tax Reform Act of 1964 saw the top marginal tax rate cut to 70 percent from the following year leading to two heavyweight title fights in 1965, and five in 1966. 90% tax rates may well be a thing of the past but for some fascinating ring action - no, not the Silom Soi 4 variety - and all in a good cause, we'd urge readers to enjoy a manly night of white collar boxing and whiskey at The Dusit Thani on October 18th in aid of Operation Smile
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