MEDIA NOTICE: I was interviewed by Michael Ostrolenk of the Association of American Physicians and Surgeons about my views on alternatve currencies. You can find out more and listen to the podcast at the AAPS blog. And now, back to the regular column.
Adam Carolla is a comedian who made his mark in the 1990's as the wisecracking sidekick to the serious Dr. Drew on Loveline.
Currently, he's a podcaster, author, and stand-up.
In a recent podcast, he talked about his late-1990's contract negotiations with MTV over the TV version of Loveline. Carolla was making money on the radio version of the show. He was making money on The Man Show with Jimmy Kimmel. The MTV show was a chore. He wasn't being paid enough to make it worth his while.
He told MTV that if he wasn't paid substantially more, he was going to walk. It was nothing personal, but he had other income streams and the amount he was then being paid by MTV wasn't worth his time.
Notice that this wasn't "greed." It was, in fact, the opposite of greed. Carolla really was ready to walk. He was not bluffing. He didn't particularly enjoy doing the show. He was willing to have a smaller annual income by quitting this job.
The salary had to be high enough to make the job worthwhile to him.
Carolla had all the leverage, because he didn't need the job and didn't like it.
One could imagine that Brett Favre would not have returned for the 2010 NFL season if he wasn't being paid a million dollars per game. In the press conference following the first game he missed since 1992, he said that he didn't want to live with the "what ifs" of not coming back.
I have no doubt he was telling the truth, but he probably would have lived with the "what ifs" if he was paid $100,000 or even $500,000 per game.
On his The Herd radio show, Colin Cowherd often talks about the tax considerations of free agent professional athletes. For instance, of the teams bidding for an athlete's services, which ones are in states with no income tax?
Again, these considerations are not about "greed." Carolla was unlikely to find another side gig that would give him as much exposure or salary as Loveline at the time. Brett Favre was unlikely to make more money after football even if he did return for just $8 million instead of double that.
It seems ironic that someone could do something only for the hefty paycheck, and yet not be greedy. But if Carolla or Favre HAD been greedy, they would have lost their leverage. They were willing to walk away from their jobs and receive no money at all.
The same logic applies to the tax considerations of the wealthy.
Imagine someone earning supposedly $1,000/hour, but because of a 36% tax rate, nets $640/hour. Because the new tax rate will be 40%, his net income is $600/hour.
Imagine he's thinking about retirement, but plans to hang on to it because of the great salary. The one thing he will not do, however, is accept a pay cut: he'd rather retire.
The new tax rate, however, imposes a de facto salary cut. He would have to ask his boss for a raise to $1,067 an hour just to maintain his previous net earnings of $640.
That's a 6.7% raise, whereas the Consumer Price Index may be under 2%.
The raise would eat into the company's profits, or eat into other expenses. Plus, the percentage raise would likely be higher than what employees in lower tax brackets would get, which would be unfair.
If the raise is denied, the company loses a valuable employee, and society loses his productivity. The company has to go through an often lengthy process of finding a probably less-talented replacement. Even if the replacement's salary is lower, so is his productivity.
The logic of tax increases is that people will continue what they're doing regardless of how much they're taxed. This is obviously not true.
If people like Adam Carolla are willing to walk away from jobs when they're not being paid enough, how many more will walk away when the government, by a tax rate increase, forces a pay cut?