The spectacle that was the Lebron-athon on yesterday is over. If you haven’t heard (in which case I desperately want to know how that happened), James chose Miami. It might have had something to do with taxes. Or maybe he was desperate to get out of Cleveland, a city that is devastated – and ticked off – by his exit.
Whatever the reason, James is headed to Miami and we can all resume our normal lives (you were waiting with bated breath for his decision, right?).
The most interesting part of this whole thing for me has been trying to figure out the economics. No, not for LeBron so much as for the teams. You see, the National Basketball Association (NBA) has a salary cap subject to a complex set of rules and exceptions. Hmm… where have I seen something like that before? Oh yeah. It’s called the Tax Code (stay with me, it’s Friday afternoon).
It got me thinking. What if our tax system was run like the NBA?
The point of the salary cap is to prevent teams in bigger markets like New York and Los Angeles from overspending on players at the expense of teams in smaller markets like Toronto and Memphis. It’s supposed to keep the league competitive. So, if a team spends too much money after taking into consideration all of the exceptions, exemptions and other “outs”, that team has to pay a luxury tax. As in baseball, only a few teams end up paying the luxury tax from year to year. Last season, about nine teams were potentially subject to the tax, including the Lakers, the Celtics and the Mavericks. The tax is a dollar for dollar penalty imposed when the team’s total salary (again, after exceptions, etc.) exceeds the amount set by the NBA (it was $69.92 million for last season). The “tax” is then put into a pool and redistributed among the teams who remained under the threshold. Kind of an interesting concept, no?
What if we did the same with taxes? Each state has a budget. States both pay into and receive federal dollars based on complicated formulas (and powerful lobbyists but I’m trying to keep this relatively simple). What if the amounts that states received from the feds were conditional on meeting certain financial criteria? What if, for example, states had spending caps imposed by the feds? What if the amounts of cash available from the feds were dependent on a spending to revenue based formula? Would it make for a more fair, more structured environment? Would that mean that Rhode Island could be on an even playing field with California even if the Ocean State didn’t generate the same dollars? And if California overspent on government programs (*cough*), would it be fair to require them to pay more federal dollars as a penalty?
In theory, mandatory spending caps in sports are supposed to generate creativity, as well as competition, while being sensitive to the idea that geography and markets do make a difference. Is that maybe what we’re lacking in our tax system? In other words, would it be a good thing if states competed for federal dollars like the Knicks, the Nets and the Heat competed for James?
To be fair, I haven’t given this a lot of thought. Just a doodle or two while browsing ESPN. But I’d be extremely interested in hearing your comments…
I think that’s exactly how it works already. Earmarks go to the most influential “players” in congress.