Does the University of Michigan's New Football Coach Need Food Stamps?

Does the University of Michigan's New Football Coach Need Food Stamps?

One of the big end-of-the-year sports-news items was Jim Harbaugh leaving the San Francisco 49ers to become head football coach at the University of Michigan. Reportedly, his salary at the University of Michigan will be $7 million for the first year. If that doesn't sound like the income of a food-stamp beneficiary, then you'd better look more closely.

One of the arguments for shelling out big bucks for Harbaugh is that a winning football team will encourage enough contributions from devoted University of Michigan alums to easily cover the $7 million paid to Harbaugh. Insofar as this is the case, taxpayers are picking up a large chunk of Harbaugh's salary.

The point here is sufficiently straightforward that even a Republican member of Congress should be able to understand it. The University of Michigan is a tax-exempt institution. This means that people who make contributions to the university get to deduct these contributions from their taxable income. Since most of the money the university gets comes from people in the highest tax bracket, the government is effectively paying 40 cents of each dollar that these people contribute to the university, in the form of lower taxes. If all of Coach Harbaugh's $7 million salary were covered by donations from high-income individuals, the government would effectively be subsidizing his pay to the tune of $2.8 million.

If this logic is troubling, imagine that I were renting an apartment from my landlord for $1,000 a month. Suppose my landlord told me that I didn't have to pay July's rent if I hired his slacker son as an intern. In this case, my landlord would effectively be paying me $1,000 to hire his son.

This is what is going on with allowing people to deduct their contributions to the University of Michigan from their taxable income. It may be the case that taxes are too high or that the burden is unfair, just as my landlord may be charging too much for rent or not properly maintaining the apartment. However, this would not change the fact that giving me a month of free rent is the same thing as handing me $1,000 to hire his kid, or that allowing people to pay less in taxes is effectively subsidizing Jim Harbaugh's salary.

(It is also possible that Michigan hopes to get back the money directly from its television fees and other football income. That's a great argument for spinning off the football program from the university, since there is no obvious reason that the football program then needs to operate with a taxpayer subsidy.)

It turns out that the taxpayer subsidy to Mr. Harbaugh is equal to an awful lot of food stamps. Food stamps are a useful reference point here, since Republicans have tried to vilify the program. The average monthly food-stamp benefit is a bit less than $140.

If we assume that Harbuagh's salary is made up by $7 million in tax-deductible contributions by rich people, then taxpayers will effectively be paying $2.8 million to subsidize his coaching job. This is equivalent to 20,000 months of food stamps. People who get upset over someone getting food stamps from the government should be very upset about a football coach getting a taxpayer subsidy equal to 20,000 months of food stamps.

To be clear, I have nothing against Jim Harbaugh or the University of Michigan. (As a University of Michigan alum, I would be happy to see them have a winning football team.) But it is certainly reasonable to ask about the size of the salaries at nonprofits that are being subsidized with our tax dollars.

The government has pursued a number of policies that have the explicit purpose of driving down the wages of ordinary workers. For example, a trade policy that puts our manufacturing workers in direct competition with low-paid workers in Mexico or China has the effect of lowering their wages. Similarly, when the Federal Reserve Board raises interest rates to slow the economy and keep people from getting jobs, it has the effect of reducing the bargaining power and the wages of those who are still employed.

It is fashionable for elite types to ignore all the policies that are designed to depress wages and then fret about inequality. Rather than join this fretting, we can directly target the government policies that shift income upward. The outlandish pay for many at nonprofits should be high on the list.

We get very competent people to serve as cabinet secretaries for $200,000 a year. Suppose there were a cap on the pay at any organization with nonprofit status at $400,000 a year. After all, if an organization can't find someone to work for it at twice the pay of a cabinet secretary, then maybe it isn't the sort of organization that taxpayers should be subsidizing.

The nonprofits will scream bloody murder if any measure like this is even considered. Undoubtedly, many of the nonprofits committed to reducing inequality and poverty will be yelling loudest.

The reality is that is it is not hard to think of ways to reduce inequality. The problem is that the people with power would much rather sit around looking concerned about inequality than do anything about it.


This has been reposted from The Huffington Post.

Posted In: Allied Approaches, From CEPR Co-Director Dean Baker