The Wall Street Journal highlights yet another example of how state policy (in this case, tax policy) has real implications. Los Angeles Laker big man Dwight Howard is the NBA’s most prominent free agent this off season and is being courted by five teams, with most prognosticators narrowing that list down to the Houston Rockets and the Lakers.
While Howard can certainly find pros and cons for joining each team, one significant factor could be each state’s tax policy. Texas has no state income tax; California’s is tops in the country. Also, cost of living is second-lowest in Texas and fourth-highest in California.
How does this all shake out for Howard’s bottom line? Even considering NBA labor agreements which allow the Lakers to offer $117 million over five years but limits the Rockets to $88 million over four years, Howard is better off financially heading to the Lone Star State. A lot better off. Like $8 million better off. From Harry Graver’s Wall Street Journal article:
[A]s Tony Nitti has noted in Forbes, this picture looks a lot different once the tax man cometh: “Howard would pay nearly $12 million in California tax over the four years if he signs with the Lakers, but only $600,000 in state tax should he sign with Houston. This means that a four-year deal with Houston would actually yield an additional $8 million in after-tax income.”
While Utah’s business policies are lacking in some areas (see yesterday’s blog post), Utahns are fortunate to live in a state with overall sane personal and business income tax rates and policies. Now if the Jazz could only find a premiere center looking to leave a high-tax state for a low-tax state….