Richard Rider

Why Prop 30 Will Decimate CA Pro Sports

Recently “my” San Diego Chargers lost to the Tampa Bay Buccaneers — employing the patented Charger second half meltdown.  No surprise.  But my concern is that this loss might be the harbinger of what we can expect in future years – for a surprising reason.

 

First some background:  Our star Charger player Vincent Jackson recently became a free agent, and Tampa Bay won the bidding war.  After Sunday’s Tampa Bay victory, Jackson was a classy guy, saying all the right things about respecting the Chargers while being happy with his new team – and home.  I bet he is!

Jackson is now WELL paid for his services.  He makes $5.2 million a year, guaranteed for 5 years.  Depending on incentive payments for how well he performs, he can make as much as $11 million a year.  The Chargers could not come close to matching that offer – or at least chose not to try.
But there’s an additional reason Jackson is so broadly smiling all the way to the bank.  IF he were still in CA, he’d be paying 13.3% state income tax (easily the highest in the nation) on most of his $55 million, 5 year salary package – plus paying that rapacious tax on all his endorsement and investment income.
Moreover, Jackson would belatedly discover that the new millionaires’ tax is owed from the first of the 2012 calendar year (our November Prop 30 income tax increase is retroactive).  But by living and playing football in Florida, he will pay ZERO Florida state income tax.
Jackson doesn’t get to escape ALL state income tax.  When he plays a game in one of the 43 states with an income tax, he will owe that state’s tax on that portion of his salary/incentive income – 1/20 of salary I think, given the number of regular games per season.
Each time he comes to CA to play, it will be a painful yet somehow reassuring reminder why he didn’t want to “home port” himself with a CA football team.  Other players throughout the league will quickly get the same message – not to mention other pro sports athletes.
Over time, this huge tax disparity between hate-the-rich CA and tax friendly states (indeed, ALL states have substantially lower income taxes than CA) will cause more star pro athletes to avoid living and working the “Golden State.”

Consider this article:  “Tax increases could factor in MLB negotiations” http://sports.yahoo.com/news/tax-increases-could-factor-mlb-191250451–mlb.html EXCERPT:  ”We’re a no-tax state,” Seattle Mariners general manager Jack Zdurienck said. ”When we sit down with players, that’s a huge benefit. I think any player out there that has an opportunity to play in a no-tax state gets benefits, enormous benefits. We hope that weighs in our favor.” ***

 

Of course, California’s bigger threats in the player auction business can be found in Texas and Florida.  Tennessee also is a zero tax state for earned income.  NC has half our income tax rate. And EVERY state’s income tax (if any)  is a lot lower than CA.  Moreover, the next two highest states (Oregon and Hawaii) have no major sports teams.

It gets worse.  How long before the OWNERS of these pro teams (especially the San Diego teams) figure this out, and become proactive in moving their teams to other states – low tax states where “our” teams can be competitive in free agent auctions for talented stars?
The Lakers won’t leave — Los Angeles is FAR too big a market.  But San Diego teams?  Uh oh. Charger, Laker and Padre fans – indeed, all CA pro team fans – get used to cheering for losing teams.  Of course, I’m assuming that in the future that you will still have local pro teams to cheer for.
Too many of the fans voted for this mess, passing Prop 30.  Their assumption was that the millionaires’ tax wouldn’t have an effect on their lives.  Instead, we see here a classic application of the “Law of Unintended Consequences.”
***
FACTOIDS:
1. Prior to Prop 30 passing, CA already had the 2nd worst state income tax rate in the nation. Our 9.3% tax bracket starts at $48,029 for people filing as individuals.  10.3% for those with more than $1,000,000 in taxable income.
2.  Now our retroactive “millionaires’ tax” rate is 13.3% – including capital gains. Increased taxes now start at $250K. CA now has by far the nation’s highest state income tax rate. We are 21% higher than the 2nd highest state (Hawaii), 34% higher than the 3rd highest state (Oregon), and a heck of a lot higher than all the rest – including 7 states with zero state income tax. http://taxfoundation.org/sites/taxfoundation.org/files/docs/ff2012.pdf Tables #11 & 13
3. CA is so bad, we also have the 2nd highest state income tax bracket. AND the 3rd highest.  Plus the 5th and 7th highest brackets. With a lock on the top three tax brackets, if this “contest” were the Olympics, California would have a “medal sweep.”  Some “victory.” http://www.twitpic.com/9g2pka/full