Conservatives are overjoyed at the news that boxer Manny Pacquiao is refusing to fight his next bout in the United States because he doesn’t want to pay taxes, and anti-tax groups like Grover Norquist’s Americans for Tax Reform are already using it as an example of how America’s “punitive” tax policy makes it less competitive with other countries around the world.
ATR first worries that the American tax code will make it more likely that other boxers follow Pacquiao’s lead, then expands into a broader critique of taxes on ordinary American investment:
Fewer boxing matches per year would mean fewer vendors, a decrease in tourism, and less money being spent in host cities. Hosting a major sporting event has proven to create jobs and insert economic life within the city. The federal government needs to follow the examples being set by GOP governors seeking to reduce their respective state’s income tax burden or risk losing investments across every industry.
At the end of the day, people migrate and invest in places where they will receive the most for their services and skills. The higher the income tax, the less return these same people will see. By continuing to have this excessively high income tax, the U.S. continues to discourage businesses and workers looking to make profitable investments.
The most obvious problem with this thinking is that the Marquez-Pacquiao fight is somehow going to bring great benefit to Las Vegas. It won’t. Fight or no fight, Vegas hotels and casinos are going to be full of high-rollers and ordinary gamblers and non-gamblers alike, because it’s Las Vegas. The utility of a sporting event in that type of economy is almost certainly even smaller than the utility of bigger sporting events, and gearing tax policy toward the attraction of sporting events is a terrible idea anyway.
The real problem, though, is the idea that tax policy is somehow the only factor in where future fights will take place. Fight promoters are going to lose a substantial amount of money if Pacquiao and Marquez fight in Asia, because more people will pay to watch if they fight in the U.S. That means there is an advantage for promoters and even most boxers to fighting in the U.S. even if they have to pay higher tax rates. It even extends in Pacquiao’s case, since lower tax rates aren’t the only reason he wants to fight in southeast Asia: nearing the end of his career, the Filipino boxer sees it as an opportunity to broaden his global fan base.
And that hits at the fallacy of ATR’s broader critique of American tax policy. Conservatives aren’t necessarily wrong when they argue that “people migrate and invest in places where they will receive the most for their services and skills.” Where they go wrong is in assuming that tax rates are the only or even the dominant determinant in that equation, and in assuming that people and their investments automatically flow to the lowest tax rate attainable. Place matters to people, and the United States is still a more advantageous place to do business, make social and business connections, and live than many other countries with lower tax rates. That’s why rich people don’t flee high-tax states like California and New York en masse, because California and New York still offer business and social advantages to many of the people who choose to live there that other states don’t have. And it’s why businesspeople and their investment don’t just up and leave the U.S. even though we charge a higher personal tax rate than many other countries. There’s no evidence backing up the claim that taxing the rich hurts growth or drives away investment, and in the U.S., periods of higher marginal tax rates actually featured higher rates of economic growth.
There are any number of reasons why people choose to live, invest, and do business in the places they do, and taxes fund many of the things, from education to infrastructure to law enforcement that protects against the graft and corruption that are the price of doing business in Macau, that make certain places advantageous to others. Conservatives don’t like to acknowledge that reality, though, because it makes it obvious that race-to-the-bottom tax policy, in which wealthy people like Pacqiuao benefit at the expense of everyone else, is a fallacious idea.