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Baseball Salaries and Taxes

Apr 14, 2011 • Businesses, Demand, Supply, and Markets, Economic Debates, Government, Households, Labor • 84 Views    No Comments

There is a connection between baseball and President Obama’s budget proposals.

Let’s start with USA Today’s baseball salary database. For 2011, at $32 million, NY Yankees’ 3rd baseman Alex Rodriguez earns the most; #2 is LA Angels’ outfielder Vernon Wells at $26,187,500 and #25 is Boston Red Sox pitcher John Lackey at $15,950,000. Much lower but still astronomical, the median salary for the NY Yankees is $2,100,000 and for the Boston Red Sox, $5,500,000.

Historically, the numbers reflect a huge increase. In 1990, at the top were Milwaukee Brewers’ outfielder Robin Yount, and Minnesota Twins outfielder Kirby Puckett who were earning, respectively, $3,200,000 and $2,816,667.

Comparing top baseball salaries, can we say that the rich are getting richer?

This takes us to a University of Michigan blog from Professor Mark Perry. Disagreeing with UC Berkeley Professor Robert Reich that the rich are getting richer, Dr. Perry points out that today’s rich are different people from those with massive net worth 20 years ago. (You could look here for Dr. Reich’s position.)

Because of “considerable” income mobility and rising incomes, there were meaningful shifts in the actual people in the different income brackets. Many households in lower income quintiles moved up while those in top groups fell. The “…share of income of the top 1 percent is higher than in prior years…” but it is a different group of households.

So yes, the rich are richer. But, it is not the same people.

How does this relate to the President Obama’s budget proposals? It relates to tax policy. Believing that incentives fuel economic growth, those who care most about income mobility tend to support tax cuts for the affluent.

Your opinion?

The Economic Lesson

A very real issue that concerns economists is income distribution.  In the U.S., our national income comes from wages and salaries, rent, interest, dividends and profits from businesses that are not incorporated. To picture our income distribution, please think of a pie as the total national income and then individual slices as the proportion that different groups receive. That would mean that if total national income were $1,000 and a society had only five households (people living together), then if every household earned $200, distribution was equal. By contrast, if one family earned $800, then, because $200 remained for everyone else, there would be considerable inequality. Recently, the top quintile of households in the U.S. earned close to 50% of all income. This quintile approach for representing income distribution was developed by statistician Max Lorenz.

*Original content has been minimally edited.

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