During the NBA playoffs, my son Steve researched and wrote two very interesting articles on the correlation between good pro baskeball teams and low tax states. It's hardly a definitive study, but it certainly makes sense economically.
Active in the local GOP, Steve posted them up on the local Republican Party website. You might find his work of interest.
It's not always how it works, but in Steve's case, the apple didn't fall far from the tree.
Sunday, May 29, 2011
State Incomes Taxes Influence on Lebron James and the Upcoming NBA Finals
While there are plenty of economic studies that support this, we have a very clear opportunity to see such effects in the upcoming NBA Finals.
For those that do not know, Miami is playing Dallas. During the offseason, LeBron James, who is widely regarded as one of the top two basketball players in the world, decided to leave Cleveland and play for Miami. In addition to considering Miami, LeBron was interested in playing for the New York Knicks, the Chicago Bulls, the Los Angeles Clippers, and the New Jersey Nets. In the end, he signed with Miami for a lower salary than he was previously making in Cleveland.
People erroneously assume Lebron took a pay cut by going to Miami. While his salary is indeed less, Florida has no state income tax, and therefor he owes far less taxes on his salary and more importantly, he owes less on his lucrative endorsements. This was a key selling point for Miami’s general manager Pat Riley when trying to attract LeBron, as all other cities he was considering had far higher state taxes. No doubt there were a lot of factors in Lebron’s decision, but it’s foolish to assume that millions of dollars in tax savings didn’t influence him (or Chris Bosh, the Heat’s other big free agent acquisition last summer).
The results of Lebron’s decision is striking. The Miami Heat dramatically improved from their previous season, finishing with the third best record in the NBA. The Cleveland Cavaliers fell from being a championship contender in 2010, to finishing with the second worst record in the NBA in 2011. Had LeBron stayed in Cleveland or gone to a team like Chicago, NBA fans would likely be seeing a different Finals match-up.
States’ benefits of employing athletic stars extend beyond winning records (note that Dallas also hails from an income tax-free state more thoughts on this here). Lebron James is literally a walking economic stimulus package. Just the advertising revenue of his infamously televised “decision” raised six million dollars for charity. He’s probably responsible for at least 100 million dollars in commerce inflow to the city of Miami ranging from his personal spending, to all of the merchandise, ticketing, and advertising deals that his name-brand brings. Also consider the increase in surrounding employment because of this man. Plenty of “middle class” jobs are created with Lebron’s presence – stadium employees, restaurant employees, and countless others are working more because of Lebron being in Miami.
With their playoff success, Miami’s season is extended by roughly 21 games, while Cleveland failed to make the playoffs for the first time in 5 years. Cleveland’s shortened season has likely cost the city millions in sales tax revenue and thousands of employable man-hours.
LeBron isn’t any different than executives, talented workers, or any entrepreneur. Tax rates influenced his decision and he took his talent, wealth, and jobs to a tax advantageous state. This isn’t rocket science to figure out, and yet states like California still naively think that they can raise taxes and not expect prosperous individuals to work less or migrate to other states. Unfortunately economic reality says otherwise.
Heat in 6. [Dad note -- well, ya can't pick 'em all.]
Sunday, May 29, 2011
Income Tax-Free States' Abnormal Success in the NBA
While it's obvious that teams can be successful with a high state income tax (Los Angeles Lakers being the obvious example), there are some interesting trends that would suggest that no state income tax teams perform better than high state income tax teams.
There are three income tax-free states with teams in the NBA (Texas, Florida and Tennessee), compiling for six teams. The three highest income tax-states in the US are New Jersey, New York, and California and there happen to be six teams in the NBA from these three states also.
Comparing these twelve teams’ success this past season can lead to interesting discoveries.
- Most notably, with the exception of the Los Angeles Lakers, all 6 of the tax-free states finished with a better regular season record than the 5 remaining high tax state teams.
- Five of the six tax-free teams made the playoffs, with Houston being the first team in the Western Conference not to make it.
- Three California teams (Sacramento, Golden State and LA Clippers) comprised for 3 of the 4 worst records in the Western Conference.
- New Jersey had the 3rd worst record in the Eastern Conference.
Historically, success has been disproportionately achieved by tax-free teams in the NBA. Going back 20 years, which includes the dominant Michael Jordan Bulls and Kobe-Shaq Lakers’ dynasties, here are some facts:
- Tax-free states accounted for 40% of the previous championships, even though they comprised for 15% of the league during that time frame (Grizzlies moved to Memphis in 2001).
- The only high income tax state team to win a championship has been the Lakers.
- Depending on the outcome of this year's Finals, at least three teams from tax free states, maybe four, will have won an NBA title.
- All five of the the NBA teams from Texas and Florida have made the Finals on more than one occasion in the last 20 years.
Like I said, the highly taxed Los Angeles Lakers have won the NBA title in 5 of the last 11 years so I’m not proposing that high taxes prevent a team from being successful. But on an aggregate level, there appears to be a definite correlation that state income tax-free teams have attracted better players than high tax states. And if NBA players’ decisions are impacted by tax rates, you can be certain that wealthy executives, business owners, and hard working American families will also take their talent, money, and jobs with them to tax-advantageous states.