High state income tax rates are giving professional athletes an increasing incentive to accept contracts from teams in other states as the money they are being offered rises.
Professional baseball player Bryce Harper, formerly of the Washington Nationals, became a free agent after the 2018 season and signed a 13-year, $330 million contract with the Philadelphia Phillies, the largest deal in Major League Baseball (MLB) history.
Offers from the San Francisco Giants and the Los Angeles Dodgers were slightly lower, but the large tax burden in California made the offers far less competitive, according to Robert Raiola, director of the Sports and Entertainment Group at PFK O’Connor Davies, a talent management firm.
“After federal, state, and local taxes, Harper will be compensated roughly $184 million from the Phillies,” states Raiola in a Fox Business article. “By comparison, the Giants’ $310 million offer would have netted the slugger approximately $161 million.”
Higher and Higher
California has the nation’s highest state personal income tax rate, the Tax Foundation reports.
Taxpayers with middle-class incomes face relatively high burdens in California. Single filers with adjusted gross incomes of about $54,000 or more paid a 9.3 percent tax in 2018, the same rate as joint filers with an income of approximately $108,000, the Tax Foundation reports.
California takes an additional 1 percent from taxable income over $1 million, bringing the maximum rate in 2019 up to 13.3 percent, according to the Federation of Tax Administrators.
Pennsylvania, by contrast, has a 3.07 percent flat rate for every taxpayer, regardless of income.
‘Players Really Get Hit’
California baseball teams are at a big disadvantage, says Harper’s agent, Scott Boras.
“The Giants, Dodgers and Padres are in the worst state income tax jurisdiction in all of baseball,” Boras told the Los Angeles Times. “Players really get hit.”
Playing in a no-tax or low-tax state brings in much greater net income.
“There’s a significant boost to players’ earnings being in the AL West vs. the NL West,” Boras told the Los Angeles Times, referring to the tax rates prevalent in the two MLB divisions.
‘Doubling Down on Bad Policies’
People are moving out of states such as California to those with lower taxes, says Dean Stansel, a research associate professor at Southern Methodist University’s O’Neil Center for Global Markets and Freedom and a policy advisor to The Heartland Institute, which publishes Budget & Tax News.
“States that have excessively high levels of taxation and government spending are doubling down on bad policies,” Stansel said.
“If they would learn from the states where all their people are moving to, they could turn around their economies and get the moving vans headed in their direction again,” Stansel said.
Bill Eastland ([email protected]) writes from Arlington, Texas.
Robert Raiola, “Bryce Harper’s Phillies deal vs. other MLB team offers (after taxes),” Foxbusiness, March 2, 2019: https://www.foxbusiness.com/personal-finance/bryce-harpers-mega-millions-baseball-contract-how-it-compares-to-other-offers-after-taxes
George Skelton, “Bryce Harper will save tens of millions in taxes by spurning the Dodgers and Giants,” March 7, 2019, Los Angeles Times: https://www.latimes.com/politics/la-pol-ca-skelton-income-tax-20190307-story.html
Morgan Scarboro, “Fiscal Fact No. 576: State Individual Income Tax Rates and Brackets for 2018,” Tax Foundation, March 5, 2018: https://files.taxfoundation.org/20180315173118/Tax-Foundation-FF576-1.pdf
“State Individual Income Taxes,” Federation of Tax Administrators, January 1, 2019: https://www.taxadmin.org/assets/docs/Research/Rates/ind_inc.pdf