Ken Rosenthal of The Athletic writes:
The Angels were in the mix for free‐agent right‐hander Nathan Eovaldi, but faced two disadvantages. One was Eovaldi’s desire to return to his native Texas; he is from Alvin, about a five‐hour drive from the Rangers’ home in Arlington. The other was the difference in state income taxes. California’s top rate is 13.3 percent. Texas has no state income tax.
So let’s see. If Eovaldi is making $17 million a year, as reported, then that California tax would cost him about $2,226,000. Look at it another way: First, the feds take 37 percent of income over $539,000. That’s a little over $6 million, leaving Eovaldi with about $11 million. The California income tax would take another 20 percent of that, leaving him with about $9 million. Which is not a bad salary for playing a game. Still, when you’re the player, that $2 million difference would matter. (Note: I’m rounding off the tax numbers, and I haven’t checked the specific details of when and how Eovaldi would receive his money.)
If this did make a difference for him, he wouldn’t be the first athlete to think about state taxes. When Trevor Ariza decided to leave the Washington Wizards of the NBA and join the Houston Rockets, the Washington Post noted that
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.
And then when Bryce Harper of the Washington Nationals became a free agent, there were lots of bidders for his services. 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.
Now who really cares where superstar athletes and entertainers go? Governors and state legislators ought to care. Especially because most tax exiles aren’t athletes, they’re businesspeople, professionals, and investors. And though their numbers may not be large, they can have a big impact on state budgets.
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.
Chris Edwards has written several times about tax migration, both before and after the COVID-19 pandemic, which of course made remote work easier than ever. Tax avoidance is as American as baseball and apple pie. State tax officials, take note.
