Fred Foldvary wrote: > If the economic rent is to be taxed, there are two cases: > 1) The government knows that the basketball economic rent is $899,999, and > that amount is taxed. The player plays for A in order to pay the tax. > 2) The government does not know the economic rent among the basketball > teams, but it does know that the next best opportunity if he does not play > basketball is $100,000. The government taxes the income above $100,000 at, > say, 90 percent, providing an incentive for the player to accept the best > offer, but still taking most of the economic rent.
The tax is not neutral, even at a 90% tax, since there is no certainty that the player will end up playing for the team that values his services the most. He will be indifferent between playing for any team valuing him at more than $200000. How would the government have any idea about what is "rent" and what is opportunity cost?
