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The Telegram
  • Matthew Casey: The theory of financial relativity in action

  • It’s happened to most of us at one time or another. The walk back to your car ends with the grim realization that the slip of paper under your windshield wiper isn’t a flyer for the local carwash: it’s a parking ticket.

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  • It’s happened to most of us at one time or another. The walk back to your car ends with the grim realization that the slip of paper under your windshield wiper isn’t a flyer for the local carwash: it’s a parking ticket.
    Though the reasons for various parking restrictions can vary, the purpose of the fine is the same -- to provide a financial incentive to comply with the law. Since most of us don’t want to part with our money on a regular basis, we try to follow the rules (with varying degrees of success).
    To that extent, the system works -- most of the time. We’ve been advised not to judge others until you’ve walked a mile in their shoes, but what if the shoes they’re wearing are diamond encrusted Bruno Maglis?
    I remember a wealthy former colleague of mine who parked anywhere he wished. Even though he ended up with bundles of $20 tickets, he simply didn’t care since he could pay the fines without blinking. To him, the cost of the tickets was worth the convenience of parking wherever he wished, respect for the rules or public safety be damned.
    Several years ago, Randy Moss, the talented but controversial football star, was fined $10,000 for what the NFL deemed an inappropriate touchdown celebration. After the fine was levied, Moss was asked by a reporter if he’d written the check yet. He explained that rich people don’t write checks and that he’d be paying “straight cash.” When asked if he was upset, Moss shook his head and asked, “What’s ten grand to me?”
    This year, New England Patriots head coach Bill Belichick was fined $50,000 for grabbing the arm of a replacement official as they were leaving the field after a game. An Internet blogger pondered what a fine of that magnitude would mean to someone as wealthy as Belichick when compared to the “Average Joe.” I wondered that myself.
    “Joe” probably earns around $32,140 per year — the median income in the U.S. It has been reported that Belichick’s annual salary is $7.5 million. However, to make an accurate assessment, we must compare Belichick and Joe on the basis of their net incomes — i.e., what’s left over after taxes and basic expenses.
    The federal government taxes income at a graduated rate: the more you earn, the higher the percentage you pay in taxes. Between 1944 and 1981, there were an average of 24 graduated tax brackets; from 1951 through 1963, the top marginal rate exceeded 90 percent. Today, there are six brackets with the highest marginal rate topping out at 35 percent.
    Under current rules, Joe would be subject to a 15 percent income tax. Someone earning $75,000 would pay 25 percent, and a $100,000 salary is subject to a 28 percent rate. The highest tax bracket of 35 percent applies to those with annual earnings of $388,351 and above.
    Page 2 of 2 - Including payroll taxes, let’s assume that Average Joe gets to keep $25,325 (his net might be a bit more if he claims any deductions, but this calculation does not include state and local taxes, which vary from state to state).
    But the analysis doesn’t end with taxes.
    Those with lower incomes must spend a considerably higher percentage of their annual net income on basic needs like food, shelter and clothing than those with higher incomes. Assuming Joe has $20,000 in fixed non-discretionary expenses for necessaries such as rent and food, that leaves him just over $5,300 to spend each year.
    In contrast, if we allow Belichick $1 million annually after taxes to finance what most would likely consider a luxurious lifestyle, he’d still have $3.8 million in disposable income. Though Belichick earns about 230 times as much as Joe, his effective spending power is more than 700 times greater.
    From this perspective, a $50,000 fine for Belichick is about the same as a $70 fine for the Average Joe. At that rate, Belichick could probably afford to grab a referee after every game if he so desired.
    In an effort to ensure that fines retain their deterrent effect regardless of income, some European jurisdictions have established a system in which fines are based on personal wealth. In early 2010, man was pulled over in Switzerland for driving his Ferrari 85 mph in a 50 mph zone. In a typical American community, such an infraction would result in a fine of about $350. In this case, the Swiss speeder — with an annual salary of $820,000 and a net worth of more than $20 million — was fined $290,000 for his indiscretion.
    It’s unlikely such a policy would ever be widely adopted in the U.S., but it is revealing when the same concept is applied in other contexts.
    For example, Team Marketing Report, a sports information publisher, conducted a survey and calculated that it costs $597.26 to take a family of four to a Patriots game at Gillette stadium.
    If Belichick had to spend an equivalent percentage of his salary as our hypothetical Average Joe to attend a game, he’d need to fork over $435,000. Whether he’d think it was worth it — especially for a pre-season game with replacement referees — remains to be seen.
     
    Read more from Matthew Casey at matthewcasey.net
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