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):


State taxes

Arizona (Phoenix)


California (LA, Oak, SD, SF)


Colorado (Denver)


Florida (Miami, Tampa Bay)


Georgia (Atlanta)


Illinois (Chicago)


Maryland (Baltimore)


Massachusetts (Boston)


Michigan (Detroit)


Minnesota (Minneapolis)


Missouri (KC, SL)


New York (New York)


Ohio (Cincinnati)


Ohio (Cleveland)


Pennsylvania (Pittsburgh)


Pennsylvania (Philadelphia)


Texas (Dallas, Houston)


Washington (Seattle)


Wisconsin (Milwaukee)


District of Columbia (Washington)


There are limits to this analysis. I’ve put them all in a footnote for those of you who care.[1]

The implication is pretty clear. Taxpayers in Dallas, Houston, Miami, Seattle, and Tampa Bay with an income of $4.47 million pay no taxes. Taxpayers in Los Angeles, New York, Oakland, San Diego, and San Francisco pay over a half a million dollars.

Hembre’s study covered football, basketball, and hockey as well as baseball. He noted that, because there aren’t salary caps in baseball, the effect he found—players avoiding higher-tax locations—is less than in the other sports. But is there an effect at all?

You’ll notice that in the examples above, I talked about taxpayers rather than players. The reason is that professional athletes don’t get taxed the way you and I are. They are subject to what’s known as the “jock tax,” in which they’re taxed by states based on the time they spend there. Take an athlete playing for the Rangers, living in Texas. When he plays home games, he’s in his home state, where he isn’t taxed. When he plays in Houston, he’s in his home state, where he isn’t taxed. When he goes to Seattle to play the Mariners, he’s in a state with no state income taxes. So far, so good.

But the Rangers play nine games in Oakland and 10 in Anaheim, as well as two in San Diego this year. That’s 21 games in high-tax California. Because of the jock tax, our player is going to have to pay California state income taxes based on the time he spends there. I estimate that our “average” player making $4.47 million will wind up paying something in the neighborhood of $57,000[2] in California state income taxes even though he doesn’t live in California.

Add in the taxes for his games in New York, Minnesota, and Missouri, and … well, all players pay state income taxes. So the effect that Hembre describes is watered down. Athletes get stuck paying some state taxes (and a lot of accounting fees) no matter where they live. Beyond that, teams, players, and their agents are aware of state taxes and can structure contracts to avoid them.

Max Scherzer’s contract with the Nationals, signed in January 2015, was billed as seven years, $210 million. But it really isn’t. He’ll make $15 million per year from 2015-2021, the life of the contract. That’s $105 million. Then he’ll make $15 million per year for seven years starting in 2022, another $105 million—after the contract ends. Why? Because Scherzer will be pushing 38 in 2022, and very possibly retired—to his home in Florida, where he will pay no income taxes. So while he’ll get hit with District of Columbia and road team state taxes over the first seven years of the deal, half the contract’s value will be paid to Scherzer, free of state taxes.

And, of course, this argument is predicated on the idea that athletes are seeking only to maximize their after-tax income. That’s not always the case. Players regularly sign contracts with home-town discounts. David Ortiz never earned more than $16 million per year from the Red Sox despite averaging over 3.0 WARP per year over the last seven years of his career, performance worth something in the $20-$25 million/year range. That’s because Ortiz wanted to stay in Boston, not that he was forced to take a below-market contract.

But here’s the killer: The numbers just don’t work out. I compiled winning percentages for all the teams during the 30-team era from 1998 to 2016. I compared them to the state tax estimates in the table above. If high taxes drive away better players, hurting the performance of the clubs in high-tax states, the correlation should be negative: higher taxes = lower winning percentages. It isn’t. It’s positive, +0.37. That’s a weak positive correlation, but a positive correlation nonetheless. Teams in higher-tax areas do better.

And if we look at World Series titles, it’s even more stark. Since 1998, teams in states with no income tax have won a grand total of one World Series—the Marlins in 2003. Teams playing in the two highest tax states, California and New York, have won four each. Missouri and Philadelphia are high-tax localities; they account for another four. Massachusetts and Illinois aren’t tax havens, and they’ve won five between them.

So, far from proving Hembre’s assertion, this analysis indicates the opposite is true: Teams in high-tax states do better than those in low-tax states. I’m pretty sure you’ll agree that there is no causality there, but you’ll also have to agree that there is no negative impact of high state taxes, at least as far as baseball teams’ performance goes.

So, go ahead, Mets, Giants, and Padres fans. You can curse your team’s luck, its ownership, its front office, its health, its dirt bikes. They’re all fair game for explaining the disappointment so far. Just don’t blame high state tax rates.

[1] I am certain that somebody reading this is a CPA who’s going to point out that some of these figures are wrong. This online calculator is my source. I am certain that it’s missed some wrinkles of some states’ tax codes. That’s OK. And I know that high state and local taxes reduce the federal tax burden, subject to phase-outs, and I’m ignoring that, too. Look, this isn’t a tax treatise. Close is fine.

[2] Accountants: Read the footnote above.

Thank you for reading

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Deeper analyses like these are great, thanks for doing it.

One minor quibble: the chart would have been easier to review if it had been sorted from highest taxes paid to lowest, rather than alphabetically by state.
Great point, David.

Here you go:
1. CA $569,620
2. NY $542,915
3. MN $434,973
4. MD $397,947
5. DC $394,864
6. WI $338,150
7. OH $318,737 (CIN)
8. PA $312,632 (PHI)
9. MO $311,856
10. OH $310,204 (CLE)
11. MI $297,068
12. GA $267,865
13. MA $227,741
14. CO $206,961
15. AZ $201,528
16. PA $181,929 (PIT)
17. IL $167,543
18. FL, TX WA $0

Apologies for the transcription errors I'm sure I made.
Nice article Rob. Thought you may be interested to know that the "jock tax" is actually filtering down to non-professional athletes, too. My job requires occasional travel, and last year I paid state income taxes in 3 separate states.

As someone who does not have a tax attorney hand-picked by Scott Boras to help me prepare my taxes, this sucks. It gets more complicated because some states have reciprocity agreements with each other, which means for those states you go ahead and pay the taxes as if you were still in your home state.

On the plus side, at least I have one thing in common with professional athletes. I'm taxed like they are.
Thanks, Randy. I left a heavy-travel job about two and half years ago that may become subject to the jock tax. As a colleague who's still there said to me, "If you hadn't quit back when you did, you would now."
Sorry to say but WGAF about this story or as I read it ( probably biased of course ) these poor professional athletes. They make the big money, they can pay the taxes.
I'm sure all, why even the journeyman athlete, have the ability to find tax professionals through their agents or club to defer as much taxes as possible....all totally legal of course, as that is how the tax code is presently written.
Save this kind of story for the winter months, or do a story on how the minor leagues set up by the clubs pay a pittance.
I think you missed my point. I am agnostic--no, apathetic--regarding the taxes athletes pay. My point was that the WSJ suggests that high state taxes result in players avoiding teams playing in those states, thereby harming the teams. The evidence not only doesn't support the assertion, it suggests the opposite.
Teams are not randomly assigned to locations, so a simple correlation does not provide any evidence about causation. There are a lot of variables to control for, which the paper (linked to below) does.

I don't have a dog in the fight regarding the tax rates, but as someone who spends a lot of time thinking about how to properly control for things to get at causation, I get frustrated when someone throws a simple correlation at a complex question and calls it evidence.
I hope you're not interpreting my statement "The evidence not only doesn't support the assertion [that higher state taxes adversely affect team performance], it suggests the opposite" as suggesting correlation. I'm merely trying to refute the correlation claimed by the study author.
The paper itself is available online.

There's a lot of work in the paper trying to account for 'all else being equal.' It's also looking at 40 years of data (tax rates vary over 40 years).

This article, on the other hand, only does simple a correlation. Let's say I said "Life expectancy is higher in France than the US. People smoke more in France than the US. Therefore, cigarettes cannot cause lower life expectancy." You would probably think my analysis somewhat limited.
Thanks for the link, Kinanik! That's really helpful.

In reading the study, I noticed a few things:
1. He ignores the jock tax. I agree with him that it's ridiculously complex, but as I noted, it waters down the impact of high and low "home" state income taxes.
2. I looked at the 30-team era, 1998-2016. He's looking at 1977-2015. However...
3. ...his "MLB tax effect" is the same as mine, i.e., a positive correlation! Only when he teases out team age, population, income, and local amenities--which a reasonable person could argue *shouldn't* be teased out--does he get a negative correlation.
4. I'm not going to knock him for doing a simple Pearson correlation, since that's what I did to. You're right, though, the causality that he's implying may not exist.

His case for an income tax effect for the salary-capped NBA, NFL, and NHL may make some sense; I don't know those sports well enough to comment. I don't see it in baseball.
I worked on a similar study back in 2011 in order to determine what the total effective tax rate was by team. It factored in schedule and pro-rating games in the different states. The following includes local income tax rates where applicable. Again, this was in 2011 but could be updated.

Teams Effective Tax Rate
HOU 2.43%
TEX 2.55%
SEA 2.57%
FLA 2.67%
TB 2.89%
PIT 4.52%
ARZ 4.67%
ATL 4.69%
STL 4.88%
CHC 4.92%
COL 4.96%
KC 5.09%
CHW 5.16%
CLE 5.26%
DET 5.30%
OAK 5.34%
CIN 5.36%
BOS 5.39%
MIL 5.40%
SD 5.56%
WAS 5.59%
LAA 5.61%
SF 5.67%
LAD 5.69%
PHL 5.73%
MIN 5.74%
BAL 6.53%
TOR 6.62%
NYM 7.51%
NYY 7.60%
Man, tonyfranco, my head spins when I think how much work this must've been...great job.

Eyeballing the list, I don't see my conclusions changing.
One thing I failed to mention. I used an average income tax rate. Using an actual income and applying the increasing rate I'm guessing would make things worse for anyone on a CA team. The 10% CA rate, plus the number of games played in State would really impact CA teams. Particularly NL West since 3 teams are in CA.
It'd impact everybody, right? But yeah, hit players in the states with highest upper-bracket rate the most.
Most players don't get to decide where they want to play, though, so average salary, while interesting, may not be the best gauge. Do high demand free agents factor state taxes into their decision on where they want to play? Scherzer's example at least seems to be "no", but rather factors it in to the contract design.

Regardless, the point was clearly made that the state tax rate impact to championships does not exist. Thanks for the fun article.
Thanks cjgeisler! Yeah, I forgot to raise that point--the players who get to pick where they live are those who make it to free agency, which is generally at least six years (longer if the player signs an extension), so that's a pretty small subset. Great point about contract design vs. where to play. I have a vague recollection of Cole Hamels preferring to get traded to the Rangers for tax reasons but I may be (probably am?) wrong about that.
You left DC out of your discussion. DC does not apply state taxes to out of state residents. So, Scherzer's contract will help him avoid "other state's taxes" as you describe, but he will not be assessed DC taxes as a FL resident (this is something Congress wrote in to tax law as a benefit to themselves)
Huh. I didn't know that. Thanks for explaining it!
I'm a CPA with 47 years of experience and I absolutely love your article. Please accept my apology on behalf of those fellow accountants as they chose to offer technical corrections in spite of your disclaimer.

BTW, when I enter the Pearly Gates, I hope that St Pete doesn't assign me to the Bookkeeping Department for eternity.
KP, entertainment, costume design...anywhere but accounting.
Thanks, cjmotl! No apology necessary--everybody went pretty easy on me. And I would think that if you make it to the aforementioned Gates, you'd be entitled to some sort of time off for good behavior.