As reported in today’s New York Post (among other places too numerous to count…) five-time All Star and Home Run Derby winner, Robinson Cano, has committed to leaving the New York Yankees for the Seattle Mariners. His most likely reason? TAXES. That’s right – unlike the great of state of New York, Washington doesn’t have ’em:
“Cano, who agreed to a deal last week with the Mariners for $240 million over 10 years, besting the Yankees’ seven-year, $175 million offer, will actually earn roughly $107 million more on his new contract instead of staying with the only team he has ever known. Because Washington does not have a state income tax, the All-Star second baseman’s deal is worth about $42 million more in after-tax pay than the Yankees’ offer, according to Robert Raiola — a certified public accountant who specializes in sports and entertainment — who spoke with Bloomberg News. Raiola bases the figure on the assumption Cano will become a resident of Washington. In New Jersey, where Cano lived, the top tax is 8.97 percent, and if he had re-signed with the Yankees, he would have paid New York State taxes on 45 percent of his income, Raiola said, noting he would have received a credit in New Jersey on those taxes.”
Obviously, there are all sorts of speculations about what Cano’s move will have for the sport of baseball but, at least for now, I’ll leave those to my hometown’s infinitely more qualified cadre of sports journalists. Instead, I’d like to take a brief moment and ponder how all this relates to taxation more generally and, in particular, whether Cano constitutes real evidence that so-called “zero-tax” states like Texas and Washington are increasingly demonstrating a real ability to ultimately attract the best talent. My conclusion: tax-free states may indeed have the right idea but Cano’s situation isn’t the proof they need.
First, as the Post explains, states tax athletes based on days or games played within their borders. Therefore, the savings Cano accrues by making the move aren’t only due to the fact that he’ll be resident of Washington but because he’ll also be playing more games in other non-tax states:
“Now playing in the American League West, Cano will also benefit from playing more than 70 percent of his games in jurisdictions that don’t have a state tax, including Texas, which features two teams in the division — the Texas Rangers and Houston Astros.”
That factor alone, amounts to a very significant portion of what will become Cano’s substantially higher earnings than had he decided remain in the Bronx (what some people might also call “team loyalty…”) Therefore, it’s crucial to remember that major league baseball players, because of their continuous (and exceedingly rigid) travel schedules, can’t simply be viewed as stand-ins for average individuals or corporations.
Moreover, Cano’s earnings arrive in the form of personal income as opposed to capital gains or corporate income. This too differentiates his after-tax returns substantially in comparison with those of most wealthy individuals and incorporated entities. Finally, as many companies have discovered after departing otherwise “desirable” but high tax cities like New York, their ability to retain and attract the best workers has sometimes been so significantly diminished they’ve ended up deciding to return. Why? Generally the result of specific lifestyle factors less likely to apply to a constantly traveling (and ultra-wealthy) MLB celebrity player than your typical corporate employee. People and companies obviously don’t choose tax environments such as New York because they enjoy paying taxes – BUT many of them obviously still feel a sufficient gravitational pull despite taxes when considering the many abstract quality of life “perks” that are simply unavailable elsewhere.
Nevertheless, Texas undeniably has an especially interesting story to tell and its most recent Comptroller’s Report ought not be overlooked:
“Job growth, sales tax collections and building permits all signal that the Texas economy continues to outpace the national economy. Over the past year, Texas added jobs in all of the 11 major industries, including professional and business services, trade, transportation and utilities, leisure and hospitality, education and health services, construction, mining and logging, government, financial activities, information, other services, and manufacturing.” [TX Comptroller’s Weekly Economic Outlook. 11/13/2013]
Similarly the Lone Star State accounted for 19 percent of the nation’s population growth in the past year. [The Texas Economy.org, accessed 11/25/2013]
That is indeed a damn big number.
So at the end of the day, while neither Cano’s personal (and highly particularized) decision, nor Texas’s recently impressive socio-financial accomplishments, constitute definitive proof that lower (or non-existent) state taxes create the capability to out-compete places like New York City or Silicon Valley, they’re both good reminders about the importance of the question. Also, however reviled taxes may be, when allocated intelligently, they can provide valued services – at least some of which absolutely make direct contributions to quality of life (think education, technology, public safety, etc…)
Seeing as NYC’s Mayor-in-waiting, Bill de Blasio, is a major tax increase proponent, now is a good time for all of us to remember the complexity of these issues and never to become complacent when determining which policies are most likely to produce the best results for those “players” who actually matter most – Yankee fans – not just Yankees.
As for Cano, I wish him nothing but the best as he departs THE GREATEST CITY IN THE WORLD for a town most closely associated with endless rain, suicidal grunge rockers, nerdy Microsoft engineers and snooty Starbucks baristas . . .
Enjoy those savings.