Dan Mitchell explains how Cam Newton is being taxed at nearly 200% on his California income for playing in the Super Bowl:
When I give speeches in favor of tax reform, I argue for policies such as the flat tax on the basis of both ethics and economics.
The ethical argument is about the desire for a fair system that neither punishes people for being productive nor rewards them for being politically powerful. As is etched above the entrance to the Supreme Court, the law should treat everyone equally.
The economic argument is about lowering tax rates, eliminating double taxation, and getting rid of distorting tax preferences.
Today, let’s focus on the importance of low tax rates and Cam Newton of the Carolina Panthers is going to be our poster child. But before we get to his story, let’s look at why it’s important to have a low marginal tax rate, which is the rate that applies when people earn more income.
Now let’s look at the tax implication for Cam Newton.
If the Panthers win the Super Bowl, Newton will earn another $102,000 in playoff bonuses, but if they lose he will only net another $51,000. The Panthers will have about 206 total duty days during 2016, including the playoffs, preseason, regular season and organized team activities (OTAs), which Newton must attend or lose $500,000. Seven of those duty days will be in California for the Super Bowl… To determine what Newton will pay California on his Super Bowl winnings alone, …looking at the seven days Newton will spend in California this week for Super Bowl 50, he will pay the state $101,600 on $102,000 of income should the Panthers be victorious or $101,360 on $51,000 should they lose.
So what was Cam’s marginal tax rate for playing yesterday?
Losing means his effective tax rate will be a whopping 198.8%. Oh yeah, he will also pay the IRS 40.5% on his earnings.
In other words, Cam Newton will pay a Barack Obama-style flat tax. The rules are very simple. The government simply takes all your money.
Or, in this case, more than all your money. So it’s akin to a French-style flat tax.