In a hypothetical world where we taxed based on height rather than income, the truly giant should pay much more than the merely giant.
In the NBA, there is a tiny pool for giant talent. According to the U.S. Census, of the 40 million prime-age men living today, only 70 eclipse the quasi-mythical 7-foot threshold. Seven-footers, you are the 0.00017%.
It's good to be tall. It's especially good to be 7-foot tall. The unfair reality is that taller people tend to earn more than their more vertically challenged counterparts. According to one study, each additional inch of height brings in $789 more in annual take-home pay.
But nowhere does height have a more outsized return than in professional basketball. NBA teams covet big men. As the saying goes, you can't coach size. It turns out you can't find it either. That's why NBA executives are willing to give modern-day Goliaths a shot as long as they have a pulse. The ability to run is a plus, but not required. (Remember Gheorghe Muresan?).
And that makes 7-feet the nation's most lucrative height threshold. Consider the following statistic, courtesy of Pablo Torre of Sports Illustrated. An American man between 6'6'' and 6'8'' has a 0.07 percent chance of making the NBA. For someone 7-foot or taller, the number is 17 percent. Those extra four-to-six inches of height translate into a stunning 243 times greater chances of landing on an NBA roster -- and with it an NBA salary.
Let's try a quick thought experiment. We already know that height and income correlate fairly well. But suppose we simplify things a lot. Let's use the probability that someone will play in the NBA based on their height as a proxy for income. What would that distribution look like? Not all that different from the actual income distribution -- which the below chart from The New York Times shows for 2010.
This is what we'd expect our height-income distribution to look l like. Except ours would be a little flatter. In real life, there's not that much difference among the bottom 80 percent of earners -- at least in absolute terms. That's not to say that there's isn't a stark difference in lifestyles between households earning $90,000 and those at the poverty line -- there clearly is -- but rather that the absolute dollar difference isn't that big compared to the dollar differences at the top of the income ladder. It's the same with height. There's not much difference among the bottom 90 percent or so of heights when it comes to chances of making the NBA. Your odds of playing professional basketball aren't that much better if you're 6-foot instead of 5'6''. But things do start inching up once we get into the top five-percent or so of height. Then we get to the top one-percent.
And things explode. More accurately, they go vertical. The differences within the top one-percent are much, much larger than the differences within the bottom 99-percent. Here it's worth remembering just how big 6'6'' is relative to everyone else. It's easily within the top one-percent of heights. Someone that tall has a significantly greater chance of making the NBA than do us Davids -- but nowhere near as great a chance as the real Goliaths clocking in at 7-foot tall. It's the same with income. There's a far greater difference between the top 0.1 percent and the top 1 percent than there is between the top 1 percent and the bottom 99 percent. Incomes go parabolic at the top.
So, how much should we tax 7-footers? That probably seems like a non sequitur, but it's not entirely facetious. A few years ago, Harvard professor (and current Mitt Romney adviser) Greg Mankiw wrote a tongue-in-cheek paper proposing we progressively tax people based on height since it correlates with income. But let's suppose we did. It wouldn't seem fair to tax 7-footers at the same rate as other very tall people -- the 6'6'' crowd. After all, the truly giant are 243 times more likely to land an NBA spot -- and with it, an average salary of $5 million -- than the merely giant.
But that's what we do for incomes. We tax the top one-percent and the top 0.1 percent at the same rate. It's actually worse than that. We really tax the top one-percent more than the top 0.1 percent in a lot of cases. The super-wealthy typically get most of their income from capital gains, so it's not uncommon for hedge funders to pay a lower rate than, say, dentists or lawyers. (Carried interest, which lets private equity barons and other financiers count their income as capital gains is part of the problem here too).
It's not hard to come up with a better tax system. Closing the carried interest loophole would be a good start. Even Greg Mankiw said so back in 2007. The Buffett Rule is another decent idea. The ultra-rich shouldn't pay less than the rich because they live off capital gains. But there's a bigger point: We need way, way more tax brackets within the top one-percent. Households earning $400,000 shouldn't be taxed at the same rate as ones earning $1 million, who shouldn't be taxed at the same rate as ones earning $5 million, who shouldn't be taxed at the same rate as ... well, you get the point.
The bottom 99 percent have more in common than the top one-percent do. It's true for height. And it's true for incomes.