LeBron James: seeking an NBA title or voting with his feet?
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In one of the biggest and most-anticipated deals in sports history, LeBron James was traded to the Miami Heat from the Cleveland Cavaliers last summer. James’ move automatically made the Heat a championship contender, suggesting that he decided to go to south Florida in search of his first NBA title.
But we can’t help but wonder if that’s the whole reason he decided to migrate to the Sunshine State. As it turns out, Florida has no state income tax. The New York Post reported that if he had decided to go to the Knicks, another team in the running for James’ services, it would have cost him more than $12 million in New York state and city taxes.
In response to these reports, the New York Times countered James may still end up being saddled with income taxes – but from other states.
Most states have what are known as “nonresident income taxes.” These require people to pay income taxes for any days they spend working in a given state, even if they do not live there. In other words, if you cross a state border to make a sales call, or meet with a client, or play a professional sports game, chances are you probably owe income taxes in that state.
[S]tates are more likely to enforce these taxes when it comes to athletes and entertainers, whose interstate travel for games and performances are public knowledge.
Evidence that athletes make employment decisions based on income taxes isn’t simply a U.S. phenomenon. Last week Amity Shlaes wrote an op-ed in Bloomberg highlighting a recent report examining big trades in European soccer and how taxes might have influenced them.
Henrik Kleven, Camille Landais and Emmanuel Saez looked at movements and performance of top soccer players in 14 countries over decades, tracking successive tax regimes and salary. Tax rates, they found, matter to players, motivating them to shift locales and affecting the record of their teams.
In 2002 Belgium introduced a preferential tax scheme to lure foreigners. In 2004 Spain introduced the so-called Beckham Law, after superstar David Beckham, one of the first to take advantage of it. The law applied only to those migrating to Spain after Jan. 1, 2004. That migrant class was eligible for a top tax rate of 24 percent, well below the 45 percent that then affected local citizens, for the five years following the move. Only those workers who hadn’t been tax residents in Spain were eligible.
Beckham wasn’t an isolated case. Cristiano Ronaldo of Portugal moved from Manchester United to Real Madrid in 2009, after the U.K.’s top tax rate rose to 50 percent from 40 percent.
[T]he correlation between performance and tax regime proved significant.
So how is this relevant to tax policy in the U.S.? What does the income tax levied on LeBron James have to do with everyday Americans? Shlaes concludes:
All this matters because the power of tax rates so often is discounted. Recently, for example, the U.S. Census Bureau came out with preliminary figures showing that, as usual, Americans were migrating in droves to low-tax states like Texas and Florida from high-tax states like Michigan and, yes, Ohio. LeBron James’s new home, Florida, ranks No. 5 among states on the Tax Foundation’s business climate ranking, which emphasizes taxes, while population grew 20 percent.
Ohio, which ranks fourth from the bottom in the Tax Foundation survey, grew by less than 2 percent in the same period. These correlations suggest that taxes affect behavior of crowds far larger than the superstar athletes.