The fundamental insight of supply-side economics is that people respond to incentives. So if the government imposes a high tax rate on income, people will try to avoid or evade the money grab.
Especially if they have any ability to control the timing, level, and composition of their income.
Star athletes are definitely in this group.
- Phil Mickelson
- Max Verstappen
- Usain Bolt
- LeBron James
- Bryce Harper
- Dwight Howard
- Shohei Ohtani
- Tyreek Hill
We can add Grant Williams to that list, as reported last year from Boston.
Testing the market worked out for Williams, who will now make more money while living in Texas, which does not have state income tax. Williams reportedly turned down a four-year, $48 million over offer from the Celtics last season. Williams mentioned Massachusetts’ Millionaire’s Tax as one of the factors he was mindful of when considering the Celtics’ offers. The Millionaire’s Tax is a four percent tax on top of Massachusetts’ five percent income tax, which raises the tax rate to nine percent for millionaires.“I was thankful just because I feel like the way my agent and everybody talked about it was that this was our floor,” Williams said. “In Boston, it’s really like $48 million with the millionaire’s tax, so $54 million in Dallas is really like $58 million in Boston and $63 million in L.A. “It was a little strategic on that end,” Williams continued.
This is hardly an unusual step.
In a column for Forbes, Patrick Gleason tells the story of a player who decided to leave a New York team for a Florida team.
Buffalo Bills’ Jordan Poyer…spent six years with the Bills, said state income tax rates were factoring into his thinking as a free agent at the beginning of 2023. “A lot of people ask me, ‘if it wasn’t Buffalo, then where would you go?’” Poyer said on a February episode of his podcast. “I kind of ponder the question every once in a while,” Poyer went on to say, adding that he “would love to go to a state that doesn’t take half my money.” The median top marginal state income tax rate among all 50 states is 5.0%, down from 6.0% in 2010. While income tax rates have come down in many states over the past decade, they’ve risen in New York. New York state now assesses a top income tax rate of 10.9%, the second highest top marginal income tax rate in the nation. The overall average state and local tax burden in New York is 15.9%, the highest in the nation. …Poyer went on to lament how in some states tax collectors “take half of your check away,” which leaves him and others wondering “what are they doing with that money?”
Since he now plays for the Miami Dolphins, at least he can enjoy being in a state with no income tax.
If star athletes don’t like playing for teams in high-tax states, this raises the question of whether some franchises have a harder time winning.
According to some research on the National Hockey League, the answer is yes.
Here are some excerpts from an AP story by Stephen Whyno.
When the Tampa Bay Lightning made moves at the NHL draft to clear salary cap space, general manager Julien BriseBois…pointed out…the “favorable taxation situation.” It has become difficult to deny the impact of favorable tax situations around the league in recent years. Four of the past five Stanley Cup champions are based in places with no state income tax, and that benefit continues to draw free agents who know they will take home more money there than elsewhere around North America. …The $69 million contract Sam Reinhart got to re-sign with the reigning champion Florida Panthers is worth more there than it would have been had he signed for the same terms in many other markets. …He would pay $1.1 million more in California, $1.5 million more in New York and $1.4 million more in Toronto, according to a calculator provided publicly by Cardinal Point Athlete Advisors. Over the length of the contract that could save him up to $12 million. …the New York Rangers or Islanders would need to offer a contract exceeding $88 million to net the same amount as Reinhart’s $69 million contract with the Panthers.
The bottom line is that taxes matter for teams and team performance (even in France).
And taxes matter for players (just like they matter for entrepreneurs, inventors, and scientists).
P.S. On the topic of athletes and taxes, Evan Mathis deserves honorary mention.
P.P.S. And Cam Newton deserves heartfelt sympathy.
P.P.P.S. I’m very supportive of athletes trying to keep the money they earn, but I’m very hostile when sports franchises want government handouts.