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SADOW: Sports Fan? Fine. Support The Tax Swap

SADOW: Sports Fan? Fine. Support The Tax Swap
January 31
12:53 2013

Even with sympathetic Republicans commanding majorities in the Louisiana Legislature, Gov. Bobby Jindal still will have to pick up about a dozen Democrats in the House and at least a couple more in the Senate in order to get his income tax elimination/sales tax increase swap passed. And here’s the wedge issue to pick off enough votes: the Saints and soon-to-become Pelicans have better chances to be better teams with the swap.

By jacking its top income tax rate up to 13.3 percent, California effectively took an issue simmering in the background for professional athletes and put it into crisis mode. With its large population and conducive weather, the state disproportionately attracts athletes at the highest, and therefore most lucrative, levels of sport to call it home, either because teams are based there or because they participate in individual sports and they can choose where to live.

But, in statements the ideological content of which give lie his nickname, very successful golfer Phil “Lefty” Mickelson noted recently as a result of the hike he needed to evaluate whether he should continue to live in California. Fellow top linkster Eldrick “Tiger” Woods spent three years at Stanford and showed long ago he was no dummy: he quit the state years ago for income-tax-free Florida in part because of once-Golden State’s high rate even then.

Team sports athletes aren’t as fortunate in their ability to self-deport, but in all major professional leagues some concept of free agency exists, where at a certain point in their careers these professionals may bid their services to other teams. And when even the typical lowest salary in the big four leagues (football, baseball, basketball, hockey) starts at a more quarter million bucks a year and can go 100 times higher, tax consequences become a major concern in decisions about where to continue their careers (for example). Even with players starting out – for example, in baseball players may decide to sign with a major league team or reject that in favor of attending college with an eye on improving their deal later – whoever they sign with will have tax consequences. LeBron James saved himself no small stack of coin when he vacated the Cleveland Cavaliers for the Miami Heat a few years ago.

Athletes based in a state, like all other state-based taxpayers, must pay state income taxes. But, worse, they also get taxed in many, but not all, jurisdictions where they play road games. This magnifies the relative value of lenient tax policy to them, and also reduces burdens of the home state, if it collects individual income taxes, in that it must create a mechanism to enforce both home state collection and from nonresident athletes (a brief explanation of Louisiana’s version is here).

So were Louisiana to rid itself of this tax, this would create a large tax cut for the 100 athletes and coaches associated with the New Orleans Saints and New Orleans (for now) Hornets (as well as relatively small ones for members of the New Orleans Zephyrs minor league teams). It also would abrogate the use of non-Louisiana athletes as money spigots, but the loss of that revenue stream also would eliminate the enforcement costs (which can be nontrivial, given the complexity of the system; for example, the 150 or so coach and player participants in the Super Bowl in New Orleans this weekend have to pay up basically at least 0.06 percent of their salaries – including playoff earnings – just for being at the big game).

And this may produce an extra incentive for players to compete for the two New Orleans franchises. Keep in mind, for example, that quarterback Drew Brees would save $1.2 million a year right off the top in state income tax liability, meaning the Saints could have offered him that much less to get the same deal – money that could then be spread out to pay other players, which can be critical in the National Football League with its salary cap. Higher net incomes attract and keep better players, and the Saints and Hornets with the deep-sixing of the tax suddenly would have in essence six percent more resources to bring to bear in that quest.

Athletes, like almost everybody else under the Jindal tax swap, would be paying more in sales taxes when in the state, but that is not likely to be increased even half of the six percent and usually would represent a much smaller base. Keep in mind as well that for the most successful athletes, a major source of income can be endorsements, which face only in-state income taxes. And, individual athletes, particularly golfers, might be more willing to relocate to Louisiana and bring with them their spending as a result of crossing out Louisiana income taxation.

So if you see a legislator who is a true believer in the faith that government needs progressive income taxation in order to correct the outcomes produced by the rigged and/or lottery-like free market system, but who also happens to be a dyed-in-the-wool Saints fan, let him know his support of the tax swap likely brings to Saints one step closer to a repeat Super Bowl win, if not the establishment of a football dynasty.

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2 Comments

  1. Richard Warner
    Richard Warner January 31, 19:43

    You stated.06 percent. Did you mean 6 percent? Just wonding.

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