Legal Commentary

Gross Domestic "Win Shares" And Productivity Losses

By Big Tent Democrat

Nate Silver writes:

Squeezing the super-rich is not a panacea. Although the inequity in the income distribution is pretty stark in America today, there just aren't that many people earning over $1 million, or over $5 million, and you probably can't squeeze them that much further before you start to run into some serious issues with productivity losses [. . .]

(Emphasis supplied.) For those of you who do not know, Silver is a wizard sabremetrician, who made his name as statistical analyst regarding baseball. The Godfather of sabremetricians was Bill James, who developed a concept called win shares - which attempts to describe each players contributions to the total wins of the team.

I was thinking about this when Silver expressed his view of expected productivity losses due to higher tax rates for millionaires. As a general proposition, it is unremarkable to say that higher taxes lead to lower productivity on an individualized basis (how the tax revenues are spent could of course offset that individualized loss - i..e - education, infrastructure, research etc.) But is it specifically true in an meaningful way with regard to increasing the marginal tax rate paid by millionaires? To wit, what is the "win share" produced by millionaires to the gross domestic product and how would that be reduced if their tax rates went up? Let's consider on the flip.

Yesterday, Paul O'Neill and Robert Rubin were on Fareed Zakaria's Sunday show and they said some interesting things. Some I agreed with. Some I did not. But what was running through my mind the whole time was what would Bob Rubin and Paul O'Neill had done differently in their lives if the marginal tax rate on income over 1 million dollars was higher than it actually was.

I venture to say there is nothing they would have done differently. But maybe they are highminded men who are not typical of this special class of productive people who make more than a million dollars a year.

But we don't need to think too hard on this really, do we? We know that the highest marginal tax rate during the Eisenhower Administration was over 90%. And what was the productivity drag on the American economy? Well, if you look at the GDP numbers, there was none.

Next, let's explore a different sabermetric concept - VORP, or Value Over Replacement Player. The concept is intended to identify the differential between a player and how a replacement would perform. So imagine for a moment that the Masters of the Universe like Rubin and O'Neill went to Galt Gulch and completely deprived the nation of their productivity as a result of an increase in the marginal tax rate for millionaires - how much would we lose if a Mere Mortal took their place? I do not know how this can be measured frankly. But I think it is almost certainly less than generally thought. Sabrmetricians proved that the value of one players in baseball was overrated. I think the same is true of Masters of the Universe./p>

But more importantly, that we do not know what MIGHT be lost is my actual point. Silver, a rigorous mathematician, speaks of "productivity losses" resulting from an increase in the marginal tax rate for millionaires and, at least to my knowledge, their is no data that actually supports this notion. Obviously there should be intuitive limits to this (though Ike may disagree), the closer you get to a 100% tax rate, the less productivity you will get. But at 40%? Hell, at 50% - is this true?

Color me skeptical.

Speaking for me only

Full post as published by TalkLeft on August 09, 2010 (boomark / email).