The relationship between football players and the tax authorities is a hot topic in Spain. A number of players have been singled out as defrauding the revenue services, one of the most recent being the Real Madrid star Cristiano Ronaldo. In his case, the numbers appear to indicate he allegedly diverted €150 million to avoid being taxed at the maximum marginal income tax rates.
Beyond the usual criticism of these practices, there are several issues that I believe deserve further reflection. The first surprising aspect is that it seems to be a widespread practice. As footballers are not specialists in optimizing taxes but rather at playing football, I imagine they hire specialists. These people talk to each other and share knowledge in order to provide a better service to their clients. If in doubt, they consult with tax specialists to ascertain what is and is not legal. Thus it is more than likely that the failure is structural rather than the fault of any particular person.
Tax policies follow a different logic
However, the most interesting aspect is the amount of tax that Spaniards have not collected that perhaps should have been. Let’s take Ronaldo’s alleged €150 million. At a marginal rate of 40%, the tax take is approximately €60 million. This is spread over several years, but if we add up all the players who have apparently followed these practices, that €60 million could be an annual amount.
Whether they deserve these salaries is not for me to say. I think as long as there are people who are willing to pay to watch the games and be exposed to the publicity (in the form of sponsors, banners and advertisements), footballers deserve a good percentage of the revenue they generate.
Moreover, these people not only generate quite substantial tax revenues, they also create jobs catering for the huge numbers who go to the stadiums and buy the shirts. Without getting into an economic analysis of sporting events, this argument is used to subsidize other sporting occasions. That is, if Ronaldo, instead of being a person were, let’s say, a racing circuit, the “Ronaldo-ring”, we would be subsidizing rather than taxing him.
More megastars, fewer taxes
Let’s go back to the €60 million and compare it to the €41 million that, for example, one regional government intends to raise with a tax on sugary drinks (I use this example because it is also current, there are many other taxes that would work just as well). A single player (or a few, but not many) can generate more tax revenue than a tax on the general population.
I wonder if it wouldn’t be better if our leaders, instead of spending their time thinking about how to raise taxes, dedicated themselves attracting more Ronaldos and Messis to the clubs in their areas. It would appear to be a more profitable venture; we land a Ronaldo and avoid a load of taxes on everyone else.
The argument also works the other way round. If our leaders make life impossible for these “stars” (and I am not referring to the non-payment of taxes, but rather to making them feel more welcome) and they go to other places where they are treated better (England’s Premier League perhaps) we will lose – amongst other things – their taxes. If Ronaldo leaves us, we will have to see how else we can collect the taxes he generated. If we cannot find another Ronaldo, there will be no choice but to create a new tax on the whole population.
In short, instead of thinking how to squeeze the citizen more, perhaps it would be more productive to think about how we can bring in the Ronaldos, Messis and the stars of various other industries, from medicine, engineering, research and cinema for example. The more of these people we have, the less tax the rest of us will have to pay. As a final point, and again without making any value judgment on growing inequality: the more inequality there is in the generation of value, the more we will need these people if we wish to finance quality public services.