Skip to main content

A Runner's Schema of the Marginal Income Tax


It’s funny how such a basic economic concept as marginal wealth confiscation can be so succinctly summarized by its mere application to sport: assume that you have a pool of athletes who are vying for the grand prize of $1,000 by achieving the 4-minute mile. 

Any athlete who completes the event under 4 minutes will be awarded $1,000. What do you suspect will be the prevailing outcome? 

My suspicion would be that each of the runners would compete wisely enough to finish the race within a close margin of that 4-minute mark. 

The reasons here are simple yet multi-faceted: the runners would benefit from group running by distributing the lead responsibility and reducing wind resistance and perhaps incidentally relieving themselves of the laborious task of pace monitoring, while limiting their exposure to downside risk (of exhausting themselves and failing to finish) by maintaining the minimum pace that would qualify them for the prize. 

Of course, this phenomenon is often traceable in obscure races where organizers reward runners for breaking previous course records. 

In these cases, perennial winners will wisely improve those records by small increments to secure a relatively easier task for next year. 

Now, in the case of the $1,000 prize, many runners may qualify for the purse, yet all of the runners will have been deprived of any incentive that would have otherwise encouraged the realization of their fullest potential on that day. 

This is an illustration of the rational actor model and the law of least effort, which in tandem suggest that individuals are inclined to maximize marginal benefit with marginal effort. 

The effect of such a marginal discouragement on attainment in the market economy, however, is far more practically perverse than the consequences attending foregone opportunities in a given athletic event. 

In this case, the wealth of individuals is confiscated, redirecting the funds in such a manner as to satisfy remote, specific demands with scarcely any residual or measured benefit passed on to the original producers who merited the accrual of said wealth in the first place, passively resulting in the downgrade of the unit of account in which the transactions had been denominated. 

What’s more, the marginal rate of confiscation, as it approaches 100%, will distort the comparison between risk and reward beyond that threshold which is magically pulled from the magician’s hat with an attitude of righteousness. 

The unintended, or unheralded, consequence of this scheme is found in the inherent discouragement of personal or financial investment in ventures that might otherwise produce long-term gains for people whom the principal doesn't even know. 

As such, the scheme will ultimately prove to undermine the appetite for success which would necessarily follow the perceived gains which originally merit the risk and self-sacrifice required for its fruition. 

So, in the end, the general outcome of any scheme which intends to limit the incentives on high achievement will necessarily limit the materialization of such achievement. And the worst part of all of this is the unrealized potential that is instead exhausted or ignored in support of politically-palatable projects which look good on paper and sound good from the podium.

Comments

Popular posts from this blog

Into the Wild: An Economics Lesson

The Keynesian mantra, in its implications, has its roots in destruction rather than truth: “In the long run, we’re all dead.” If this is your guiding principle, we are destined to differ on matters of principle and timeline. While it is true that our fates intersect in death, that does not mean that we ought to condemn our heirs to that view: the view that our work on this planet ought only to serve ourselves, and that we ought only to bear in mind the consequences within our own lifetimes.  The Keynesians, of course, prefer their outlook, as it serves their interests; it has the further benefit of appealing to other selfish people who have little interest in the future to which they'll ultimately condemn their heirs. After all, they'll be long gone by then. So, in the Keynesian view, the longterm prospects for the common currency, social stability, and personal liberty are not just irrelevant but inconvenient. In their view, regardless of the consequences, those in charge tod

America's Civil War: Not "Civil" and Not About Slavery

Virtually the entirety of South and Central America, as well as European powers Britain, Spain and France, peacefully abolished slavery — without war — in the first sixty years of the nineteenth century.  Why, then, did the United States enter into a bloody war that cost over half of the nation’s wealth, at least 800,000 lives and many hundreds of thousands more in casualties?  The answer: the War Between the States was not about slavery.  It was a war of invasion to further empower the central government and to reject state sovereignty, nullification of unconstitutional laws, and the states’ rights to secession.  It was a war that would cripple the South and witness the federal debt skyrocket from $65 million in 1860 to $2.7 billion in 1865, whose annual interest alone would prove twice as expensive as the entire federal budget from 1860. It was a war whose total cost, including pensions and the burial of veterans, was an estimated $12 billion. Likewise, it was a war that would

There's Always Another Tax: The Tragedy of the Public Park

In the San Francisco Bay Area, many residents work tirelessly throughout the year to pay tens of thousands of dollars in annual property taxes. In addition to this, they are charged an extra 10 percent on all expenses through local sales taxes. It doesn't stop there. In addition to their massive federal tax bill, the busy state of California capitalizes on the opportunity to seize another 10 percent through their own sizable state income taxes. But guess what! It doesn't stop there. No, no, no, no.  In California, there's always another tax. After all of these taxes, which have all the while been reported to cover every nook and cranny of the utopian vision, the Bay Area resident is left to face yet an additional tax at the grocery store, this time on soda. The visionaries within government, and those who champion its warmhearted intentions, label this one the "soda tax," which unbelievably includes Gatorade, the preferred beverage of athletes