May 18, 2017
A Taxing Problem
The Wall Street Journal op-ed section is not known for its fondness for taxes. So it wasn’t a surprise, at least in terms of the editorial board’s predilections, to see this headline earlier this month: “Tax Rates and Professional Losers: A new study says high taxes could cost your team a championship.”
I’ve included a link, but the article is behind the WSJ’s paywall, so I’ll summarize the argument for non-subscribers. The key paragraph:
Erik Hembre, an economist at the University of Illinois-Chicago, looked at the question: Do tax rates affect a team’s performance? He analyzed data in professional football, basketball, baseball and hockey between 1977 and 2014. Since the mid-1990s, he writes, “a ten percentage point increase in income tax rates is associated with between a 1.9-3.0 percentage point decrease in winning percentage.”
In other words, the higher your state taxes, the worse your professional sports teams.
Professional athletes make a lot of money. As a result, their income generally falls in the highest tax bracket in their state of residence. Let’s say someone is single and makes the major-league minimum of $535,000. Living in California, that person will pay $51,330 in state taxes. Someone making $1 million per year will pay $108,351. Someone making $10 million per year will pay over $1.3 million.
Every spring, USA Today runs a story about major-league salaries. This year, it reported an average salary of $4.47 million. That’s a mean figure, where a median would be more appropriate in my opinion, but let’s go with that. Here are the state taxes a single taxpayer with a $4.47 million salary will pay in the states in which Major League Baseball operates (I’m excluding Toronto):