Thursday, July 30, 2009

Bad News if You Root for the New York Yankees, Los Angeles Lakers, or New England Patriots

Bad News if You Root for the New York Yankees, Los Angeles Lakers, or New England Patriots. A sportswriter at NBA.com explains how higher tax rates will make it even more attractive for professional athletes to sign with teams from zero-income tax states such as Florida and Texas. This is good news if you cheer for the Miami Dolphins or Texas Rangners. But if you support teams from high-tax states, you should be very upset that greedy politicians are making it more likely that your favorite franchise will be at a competitive disadvantage:

With increasing taxes geared to the wealthy and the Bush tax cuts also coming off the books, it may be that the low tax states like Florida and Texas begin to have a big advantage over higher tax states when it comes to NBA free agents. ...Could, in the end, the biggest barrier to the Bulls attracting a major free agent next summer like Dwyane Wade be the health care legislation now being debated in Washington? ...The answer is taxes. The closest anyone seems to a plan now to pay for the changes is to tax the so-called rich. That would include just about every player in the NBA. I know we’re not supposed to feel sorry for rich people and assume they have so much that giving up more doesn’t matter. It does, just as comfortable people in the middle class with two cars and a nice health club membership don’t want to pay more taxes, either, even though they can afford to. So I contacted a tax expert in Chicago, Noel Wilner, president of CBIZ MHM, an accounting and tax advisory company, and asked him to do some calculations. The assumption was single tax payer, the 2011 tax rates when the presumed five percent health care surtax would go into effect with the higher rates that year, salaries of $5.5 million, which is about the NBA average, and $17 million, which would be a high earner like Wade and no deductions. ...The total tax for a $5,500,000 salary and an Illinois resident is $2,568,412. This is made up of $2,142,412 of federal income tax, $261,000 of health care tax and $165,000 of Illinois tax. A Florida resident will have the same federal and health care tax but no state income tax ($165,000). The total tax for a salary of $17,000,000 will be $8,088,412. That is made up of $6,696,412 of federal income tax, $882,000 of health care tax and $510,000 of Illinois tax. A Florida resident will have all the same tax except no state tax ($510,000). In addition, Wilner notes, there is typically an allocation to other states where the games are actually played. But there should be at least a savings of 50% of the state tax for being a Florida resident as 50% of the games are home games. I know almost $9 million after taxes is a lot of money. But with the government adding on another half million dollars penalty to pay for health care and who knows how much more down the road as the rich seem to be set up as the villains in this health care debate, suddenly hanging onto more than $500,000 in state tax may sound appealing. So perhaps someone like Wade sees he can resign with his own team for an extra year under NBA rules and then get that much more in tax benefit, and maybe the money starts becoming too big to decide to leave? With increasing taxes geared to the wealthy and the Bush tax cuts also coming off the books, it may be that the low tax states like Florida and Texas begin to have a big advantage over higher tax states. And then seemingly making it even less appealing to go to a ridiculously high tax state like New York.

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