2007 October 28 Sunday
State Income Taxes Affect Major League Baseball Competitiveness

States with high state income taxes have to pay more than states with lower state income tax for the same players.

Major League Baseball teams in Florida, Texas and Washington benefit from having no state income taxes because they are able to get free agents to accept offers of lower salaries, according to the authors of "Baseball Salaries and State Income Taxes: The 'Home Field Advantage' of Income Taxes on Free Agent Salaries."

Unlike the pre-tax salaries reported in the media, MLB players compare after-tax salaries when considering offers, according to the authors. The study found that differences in state income taxes and local taxes in U.S. cities with MLB teams ranges up to about 10 percent.

"The basic implication of this tax difference is a competitive edge for teams in low-tax areas because they have lower team expenses in signing free agents to contracts that pay the same after-tax wage to players," according to the study.

So when a state raises its state income tax some businesses end up paying higher salaries and therefore the businesses and not just the employees pay for the higher state income taxes.

The teams in states with higher state income taxes end up having to up their offers to free agents to compensate for the costs of state income taxes.

"We find that individuals choosing to play in cities with income taxes must be paid higher pre-tax salaries by an amount that ranges from $150,00 to $300,000," the study found.

For example, a trade involving several players during the winter of 2002-03 involving Florida, Colorado and Atlanta almost fell through in its final stages when Charles Johnson refused to void a no-trade clause in his contract unless he received an additional $1 million to move from Florida to Colorado, the study said.

Players on Canadian teams pay even higher taxes than players in California.

Five of the 30 Major League Baseball teams have no state or local income taxes: Florida, Tampa Bay, Houston, Texas and Seattle. The states with the highest marginal tax rates paid by players were California at 9.30 percent, Minnesota at 7.85 percent and Ohio at 7.50. Rates for the two Canadian teams, Toronto and then-Montreal, were even higher.

All else equal, higher earning people should migrate to lower state income tax states.

What I wonder: Do any Silicon Valley venture capital start-up winners move to no-income-tax states after their companies go public so they can sell their stock without paying California state income tax?

What I also wonder: Do some American very high earners get their corporations to open offices in low tax states so they can work remotely from main offices and earn their big bucks? Do some even go and live abroad for this purpose?

Share |      By Randall Parker at 2007 October 28 03:53 PM  Economics Labor


Comments
Audacious Epigone said at October 30, 2007 8:18 AM:

There is a message in there somewhere regarding whether or not it is wise for the US to continue to maintain a federal income tax, instead of a national sales tax.

Steve Sailer said at October 30, 2007 8:54 PM:

Most PGA touring pro golfers live in Texas or Florida due to the lack of a state income tax.

I'm imagine that Tiger Woods, who grew up in Orange County, would like to live in a mansion on the beach in California,
but he instead moved to Florida simultaneously with turning pro.

Almost none of the New York Yankees live in NYC because of the city income tax.

Back in the 1990s, pitcher Jack McDowell, who had his own rock band, lived in NYC because he liked the hip culture, but all
the other playersd live in the suburbs.


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