Even Hollywood movie stars respond to high taxes

In recent years, Hollywood celebrities have possibly been among the most outspoken proponents of higher taxes, with some of them even penning a letter calling for higher taxes. Why they don’t just donate their money to the IRS despite there being an option to do so is beyond logic.

But what is perhaps more puzzling is the fact that the behavior of Hollywood celebrities generally doesn’t square with their support for higher taxes. For one, Hollywood benefits a lot from special tax breaks offered by states. Hollywood is also not immune to stories of tax evasion. And recently, more stars are leaving Hollywood to escape high taxes.

Taxes are incentives

But if indeed these celebrities believe that higher taxes are the way to a better life, they would gladly pay their taxes, and even actively search for places with higher taxes and live there. These celebrities would also work more, to make more money and pay these high taxes. But more and more evidence suggests that that’s not what they do.

In fact, according to a new National Bureau of Economic Research (NBER) study that analyzed behavior among movie stars from 1974 to 2014, for example, while high-paid movie stars do not make fewer movies in response to high taxes, they appear in higher-quality movies — that pay less — in order to escape these high taxes. In essence, celebrities give up starring in blockbuster movies which would make them more money, and instead get less pay, for high-quality movies that would instead give them prestige, or win them awards.

As American Experiment has already pointed out, taxes are incentives. They discourage whatever activity is being taxed. You tax income, you discourage people from making more money — even Hollywood celebrities. It’s as simple as that.