Income Inequality and the NBA

April 18, 2014

With income inequality such a popular topic these days, how much would dampening inequality also dampen economic growth? Ike Brannon, a senior fellow at the George W. Bush Institute, looks at the National Basketball Association (NBA) as an example of an industry that has expanded massively thanks to technological changes. While basketball's popularity has not changed much in the last 30 years, the ability of basketball consumers to watch NBA teams play the sport has changed. Indeed, the ability of Americans -- and those around the world -- to watch NBA games on their televisions at home launched an industry.

  • The average NBA salary has grown by more than 1,500 percent since 1985, and certainly there are some very, very wealthy basketball stars earning incredibly large salaries.
  • Notably, however, this is not the norm. The median tenure in the NBA is just six years, and less than two years for those who do not become starters (the majority of all NBA players).
  • The minimum NBA salary is $480,000, and the typical player is not rich. And in high-tax states, the government keeps more than half of income over $400,000 in taxes.

But for those players that are earning salaries at the top -- the LeBron James' of the world -- would taxing their salaries do much to reduce inequality? Would it help our budget situation?

Brannon explains that very high tax rates can impact those who might otherwise aspire to make it to the top. This is especially true in the non-NBA realm -- the United States would likely see less effort from aspiring managers, for example, if greater effort and upward mobility meant exorbitant taxes. But moreover, confiscatory taxes on those at the top could have impacts on people beyond the NBA players themselves.

  • With the explosion in popularity of the NBA came a variety of other, non-player jobs -- both the NBA and individual teams have employees in sales, finance, marketing, event management, community relations, and the like.
  • Beyond this, the growth of the NBA -- and those corresponding high salaries -- has led to jobs in merchandising and broadcasting.
  • Thousands of jobs have been created due to the expansion of the NBA's popularity.
  • All of the non-rich people in these jobs could suffer from a confiscatory tax scheme leveled at the highest NBA salaries.

Source: Ike Brannon, "Income Inequality and the NBA," Regulation Magazine, Spring 2014.

 

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