NBA superstars have a chance to live the American Dream when they become free agents: they can choose to pay less in taxes. Just look at LeBron James: because he chose to go to Florida instead of staying in Ohio, he saved $6 – $8 million over the next five years because Florida has no state income tax while he was paying close to 7 percent in Akron, Ohio.
While not every free agent can indulge in LeBron-style televised melodrama over where to sign, next year’s free agents have some choices to make, and the tax bite certainly should factor into those decisions. Next year, Carmelo Anthony, Yao Ming, Tony Parker, and Chris Paul will all likely have their pick of “max” contract offers from their own teams and across the country. The teams most in a position to make such lavish offers include the New York Knicks, the New Jersey Nets, the Chicago Bulls, the Phoenix Suns, the Detroit Pistons, and the Toronto Raptors, but the take-home value of the offers would be radically different depending on which state the team is based.
Under NBA rules, when signing with a new team under a “max” contract, a team can offer a player up to $96 million over five years ($19.2 million per year). Living in the bankrupt state of New York, over half of that $96 million contract goes to the taxman. First, $7.6 million goes to Washington D.C. to cover federal income tax, then another $2.3 million goes to New York City and state tax collectors. To make matters worse, then one faces a crippling 10 percent sales tax in NYC, not to mention ludicrous property taxes. New York City, (with its combined 12.17 percent state and local tax rate) represents the worst of the worst, New Jersey falls in close second with a combined 10.75 percent state and local rate, and playing ball in Michigan (with a combined 5.35 percent state and local tax rate) is nothing about which to get excited.
Instead of forfeiting millions wastefully, two of these players (Ming and Parker) could choose to stay in their present state of Texas and pay zero state income taxes. In fact, each of the four superstars up for free agency next year would do best to stay put, as they’d all be able to keep more of what they earned due to the comparatively low 4.63 percent tax rate in Colorado, where Anthony plays, and the 6 percent rate in Louisiana, where Paul plays. Neither state is a Texas, but neither state is a New York or a New Jersey.
For the athletes, there is clearly a right answer for themselves and their families as players and taxpayers. They can choose to make less or choose to make more by cherry-picking a government that rewards successful people. Thousands of American families and small businesses do the same thing when they choose to move from high-tax to low-tax states every year.
For fans and state lawmakers, there is also clearly a right answer. Many of the highest-taxing states like New York, New Jersey, and California are witnessing the NBA situation writ-large; the most talented people go to states like Texas and Florida where people can bring home more of their success. Likewise, the highest-taxing states face the most crippling budget crises while those states with low rates do a better job of spending wisely.
If fans want a more exciting basketball team and a more vibrant state economy, they need to take a long and hard look at what makes places like Texas and Florida successful and then compare that to the limping economies in states with a legacy of punishing success.
Jeremy Weltmer is a Federal Affairs Associate at Americans for Tax Reform. He currently attends Yale University, where he is active in campus politics with the Yale Political Union, of which he just finished a term as Floorleader of the Right.