Soak the Famous

Adam Smith didn't mince words about monopolies.  They are "absurd and oppressive[.] ... Like the laws of Draco, these laws may be said to be written in blood."  The monopolies he had in mind were those granted by the government: the king or one of his cronies had the exclusive right to manufacture or sell a particular product.

It was Thomas Malthus who first noticed that there could be "natural" monopolies.  The example he gave was the wine from certain vineyards in France.  But most natural monopolies are hypothetical: if all the diamonds in the world were located in a small region of South Africa, the owners of the land could monopolize the resource.

Economists naturally were not very interested in imaginary "resource" monopolies and instead began focusing on non-government monopolies that were the result of production costs: economies of scale, high entry costs, etc.  By the early 1930s, economists were seeing quasi-monopolies everywhere.  They were created by product differentiation through advertising, for example.  Perfect competition was an illusion.

The question as to what to do about natural monopolies was intensely debated.  In some cases it seemed desirable to protect or even create a monopoly for a limited time, hence patents and copyrights.  But most of the interventions proposed were to tax, regulate, manage, or nationalize the monopoly in question -- railroads, telegraph and telephone companies, suppliers of water and electricity, etc.

Even who those of us who'd indignantly reject out of hand any proposal for a new tax -- especially one coming in mid-April -- might be willing to make an exception for a resource monopoly that Malthus could never have imagined.

Bill Clinton earns about $200,000 for a speech.  After ten years on the circuit, he's netted close to $75 million.  The former president is not paid 200K because the sponsor thinks what Bill has to say will be insightful, entertaining, or even interesting.  He's paid that fee because he's Bill Clinton.  He has a monopoly on his identity.  You might be able to give a more acute and amusing talk, but you can't call yourself William Jefferson Clinton.

The question as to whether he's earned a right to be paid close to eight times the annual median wage for a couple of hours work is beside the point.  Like every celebrity, Bill is a monopolist.  And while we're considering a supertax on the rich, we might want to think about a surtax on these worthies.

Who's a celebrity?  If the number of people you've heard of exceeds the number of people who've heard of you, you're probably not one.  In the end, the IRS would have to create a review board that would combine Google and other search results, opinion polls, product endorsement revenue, lecture fees, book sales, etc. to determine who'll be paying the tax.  People who've enjoyed only their 15 minutes of fame would be excluded (hi and bye, Hilary Rosen), as would niche market celebrities known mostly to cognoscenti -- championship shuffleboard players, leading lepidopterists, distinguished Byzantine historians.

How much should the identity-monopolists pay?  The Buffett Rule would increase the effective marginal tax rate on capital gains by 50%.  Ten percent for celebs does not seem outrageous.  Prize money would be excluded -- Super Bowl and World Series shares, Wimbledon earnings.

How much revenue would the surtax generate?  Impossible to say, of course.  It depends on how many individuals qualify and what strategies they opt for in response to the tax.  But the short answer is "a lot."

According to estimates on the web, Leonardo DiCaprio earned $77 million the last fiscal year, Johnny Depp $50 million (down from $75 million the year before), and Adam Sandler $40 million.  Bon Jovi raked in $125, Lady Gaga $90, and Justin Bieber $53 million, while Tiger Woods grossed $75, Kobe Bryant $53, and LeBron James $48 million in the same period.  Among writers, James Patterson took in $84, Danielle Steele $35, and Stephen King $28 million.  The average Fortune 500 CEO earns in the neighborhood of $11 million.

"Damn you, I'm not an actor, I'm a movie star," says the poseur Alan Swann in My Favorite Year.  There are certainly celebrities famous mostly for being famous -- Paris Hilton ($8.5 million), Kim Kardashian ($35 million) -- but there's no denying that the folks above are very good at what they do, and that they generate a lot of revenue for the studios, record companies, teams, etc. that have hired them.  Again, that's beside the point.  Even though it's impossible to calculate the "unearned increment" their name provides, the monopoly is producing surplus income.

Objections from the famous?  Celebrities are almost all fans of big government and believers in "social justice."  Here's a chance to do the right thing, give back to the community, and act on the other platitudes they're fond of reciting.

If Congress were shrewd enough to introduce a three-tiered tax, it might generate even more revenue.  What you subsidize you get more of, what you tax you get less of, ceteris paribus, but considerations of status might encourage celebs to cheerfully shell out more if they could call themselves A-List taxpayers.  There would be a scramble to make the C-List.  Irate agents would be calling the IRS, demanding that their clients be charged the surtax.

But American culture, if not the U.S. Treasury, would be better off if the old libertarian dictum were true here.  We know in our hearts that the work of a skilled surgical nurse is more valuable than the ability to impersonate someone else with a script you've been handed, or knock a little ball into a hole, or throw a bigger one through a hoop.

The rationale for the surtax may be based on sound economic principles, but in imposing it we would also be reminding ourselves that we are not idolaters.

Adam Smith didn't mince words about monopolies.  They are "absurd and oppressive[.] ... Like the laws of Draco, these laws may be said to be written in blood."  The monopolies he had in mind were those granted by the government: the king or one of his cronies had the exclusive right to manufacture or sell a particular product.

It was Thomas Malthus who first noticed that there could be "natural" monopolies.  The example he gave was the wine from certain vineyards in France.  But most natural monopolies are hypothetical: if all the diamonds in the world were located in a small region of South Africa, the owners of the land could monopolize the resource.

Economists naturally were not very interested in imaginary "resource" monopolies and instead began focusing on non-government monopolies that were the result of production costs: economies of scale, high entry costs, etc.  By the early 1930s, economists were seeing quasi-monopolies everywhere.  They were created by product differentiation through advertising, for example.  Perfect competition was an illusion.

The question as to what to do about natural monopolies was intensely debated.  In some cases it seemed desirable to protect or even create a monopoly for a limited time, hence patents and copyrights.  But most of the interventions proposed were to tax, regulate, manage, or nationalize the monopoly in question -- railroads, telegraph and telephone companies, suppliers of water and electricity, etc.

Even who those of us who'd indignantly reject out of hand any proposal for a new tax -- especially one coming in mid-April -- might be willing to make an exception for a resource monopoly that Malthus could never have imagined.

Bill Clinton earns about $200,000 for a speech.  After ten years on the circuit, he's netted close to $75 million.  The former president is not paid 200K because the sponsor thinks what Bill has to say will be insightful, entertaining, or even interesting.  He's paid that fee because he's Bill Clinton.  He has a monopoly on his identity.  You might be able to give a more acute and amusing talk, but you can't call yourself William Jefferson Clinton.

The question as to whether he's earned a right to be paid close to eight times the annual median wage for a couple of hours work is beside the point.  Like every celebrity, Bill is a monopolist.  And while we're considering a supertax on the rich, we might want to think about a surtax on these worthies.

Who's a celebrity?  If the number of people you've heard of exceeds the number of people who've heard of you, you're probably not one.  In the end, the IRS would have to create a review board that would combine Google and other search results, opinion polls, product endorsement revenue, lecture fees, book sales, etc. to determine who'll be paying the tax.  People who've enjoyed only their 15 minutes of fame would be excluded (hi and bye, Hilary Rosen), as would niche market celebrities known mostly to cognoscenti -- championship shuffleboard players, leading lepidopterists, distinguished Byzantine historians.

How much should the identity-monopolists pay?  The Buffett Rule would increase the effective marginal tax rate on capital gains by 50%.  Ten percent for celebs does not seem outrageous.  Prize money would be excluded -- Super Bowl and World Series shares, Wimbledon earnings.

How much revenue would the surtax generate?  Impossible to say, of course.  It depends on how many individuals qualify and what strategies they opt for in response to the tax.  But the short answer is "a lot."

According to estimates on the web, Leonardo DiCaprio earned $77 million the last fiscal year, Johnny Depp $50 million (down from $75 million the year before), and Adam Sandler $40 million.  Bon Jovi raked in $125, Lady Gaga $90, and Justin Bieber $53 million, while Tiger Woods grossed $75, Kobe Bryant $53, and LeBron James $48 million in the same period.  Among writers, James Patterson took in $84, Danielle Steele $35, and Stephen King $28 million.  The average Fortune 500 CEO earns in the neighborhood of $11 million.

"Damn you, I'm not an actor, I'm a movie star," says the poseur Alan Swann in My Favorite Year.  There are certainly celebrities famous mostly for being famous -- Paris Hilton ($8.5 million), Kim Kardashian ($35 million) -- but there's no denying that the folks above are very good at what they do, and that they generate a lot of revenue for the studios, record companies, teams, etc. that have hired them.  Again, that's beside the point.  Even though it's impossible to calculate the "unearned increment" their name provides, the monopoly is producing surplus income.

Objections from the famous?  Celebrities are almost all fans of big government and believers in "social justice."  Here's a chance to do the right thing, give back to the community, and act on the other platitudes they're fond of reciting.

If Congress were shrewd enough to introduce a three-tiered tax, it might generate even more revenue.  What you subsidize you get more of, what you tax you get less of, ceteris paribus, but considerations of status might encourage celebs to cheerfully shell out more if they could call themselves A-List taxpayers.  There would be a scramble to make the C-List.  Irate agents would be calling the IRS, demanding that their clients be charged the surtax.

But American culture, if not the U.S. Treasury, would be better off if the old libertarian dictum were true here.  We know in our hearts that the work of a skilled surgical nurse is more valuable than the ability to impersonate someone else with a script you've been handed, or knock a little ball into a hole, or throw a bigger one through a hoop.

The rationale for the surtax may be based on sound economic principles, but in imposing it we would also be reminding ourselves that we are not idolaters.