David Boaz
I’ve written before about whether athletes take state taxes into account when they weigh competing offers. Here’s another example: Grant Williams left the Boston Celtics for the Dallas Mavericks, at least partly because of Massachusetts’ Millionaire’s Tax:
Testing the market worked out for Williams, who will now make more money while living in Texas, which does not have state income tax. Williams reportedly turned down a four‐year, $48 million over offer from the Celtics last season.
Williams mentioned Massachusetts’ Millionaire’s Tax as one of the factors he was mindful of when considering the Celtics’ offers. The Millionaire’s Tax is a four percent tax on top of Massachusetts’ five percent income tax, which raises the tax rate to nine percent for millionaires.
“I was thankful just because I feel like the way my agent and everybody talked about it was that this was our floor,” Williams said. “In Boston, it’s really like $48 million with the millionaire’s tax, so $54 million in Dallas is really like $58 million in Boston and $63 million in L.A.”
Here’s what I wrote in 2019 when Bryce Harper chose Philadelphia over San Francisco:
Has California lost another centi‐millionaire because of its high tax rates? Washington Nationals superstar Bryce Harper just signed a 13‐year, $330 million contract with the Philadelphia Phillies, the largest contract in the history of major North American sports. (Though not the largest when adjusted for inflation.) Some reports say that the San Francisco Giants came very close in the competition but lost out because of California’s taxes. Alex Pavlovic of NBC tweeted:
“I’m told Giants made a 12‐year, $310 million offer to Bryce Harper. They were willing to go higher but would have had to go well over $330 million to get it done because of California taxes.”
If taxes did keep Harper on the East Coast, he wouldn’t be the first sports star to make such a decision. Trevor Ariza, a member of the Los Angeles Lakers’ 2009 NBA championship team and by 2014 “a key part of the Wizards’ playoff run,” decided to leave Washington and join the Houston Rockets. Why?
“Washington was disappointed but hardly shaken when Ariza chose to accept the same four‐year, $32 million contract offer in Houston, where the 29‐year‐old could pocket more money because the state doesn’t tax income.”
As I wrote then, yes, a $32 million salary – or indeed a $32,000 salary – goes further in Texas than in the District of Columbia. What economists call the “tax wedge” is the gap between what an employer pays for an employee’s services and what the employee receives after taxes. It causes some jobs to disappear entirely, as employees and employers may not be able to agree on a wage once taxes are taken out of the paycheck. It causes some employees to flee to lower‐tax countries, states, or cities. The Beatles, the Rolling Stones, Bono, and Gerard Depardieu are some of the better‐known “tax exiles.”
It isn’t just entertainers and athletes, of course. A 2018 study found that 138 millionaires left California after a 2012 tax increase. Millionaires have also been seen leaving Connecticut, New York, and New Jersey. Last fall Chris Edwards wrote about the impact of taxes on interstate moves.
As taxes rise in many states, no‐income‐tax states like Texas, Florida, Washington, Tennessee, and Nevada may become increasingly attractive to athletes, entertainers, and other high‐income producers.
