State Incomes Taxes Influence on Lebron James and the Upcoming NBA Finals

In almost every tax increase that politicians and labor unions pitch to the public, we hear "if people would just pay a little bit more, all of our budget shortfalls will be solved." These tax increases invariably target the rich, and taxpayers are promised prosperity, quality education, security, and employment. What every single “study” proposed by these tax seekers ignores is that a tax increase, no matter how big or how small, will invariably cause some people, particularly rich people, to work less and create less jobs.

While there are plenty of economic studies that support this, we have a very clear opportunity to see such effects in the upcoming NBA Finals.

For those that do not know, Miami is playing Dallas. During the offseason, LeBron James, who is widely regarded as one of the top two basketball players in the world, decided to leave Cleveland and play for Miami. In addition to considering Miami, LeBron was interested in playing for the New York Knicks, the Chicago Bulls, the Los Angeles Clippers, and the New Jersey Nets. In the end, he signed with Miami for a lower salary than he was previously making in Cleveland.

People erroneously assume Lebron took a pay cut by going to Miami. While his salary is indeed less, Florida has no state income tax, and therefor he owes far less taxes on his salary and more importantly, he owes less on his lucrative endorsements. This was a key selling point for Miami’s general manager Pat Riley when trying to attract LeBron, as all other cities he was considering had far higher state taxes. No doubt there were a lot of factors in Lebron’s decision, but it’s foolish to assume that millions of dollars in tax savings didn’t influence him (or Chris Bosh, the Heat’s other big free agent acquisition last summer).

The results of Lebron’s decision is striking. The Miami Heat dramatically improved from their previous season, finishing with the third best record in the NBA. The Cleveland Cavaliers fell from being a championship contender in 2010, to finishing with the second worst record in the NBA in 2011. Had LeBron stayed in Cleveland or gone to a team like Chicago, NBA fans would likely be seeing a different Finals match-up.

States’ benefits of employing athletic stars extend beyond winning records (note that Dallas also hails from an income tax-free state more thoughts on this here). Lebron James is literally a walking economic stimulus package. Just the advertising revenue of his infamously televised “decision” raised six million dollars for charity. He’s probably responsible for at least 100 million dollars in commerce inflow to the city of Miami ranging from his personal spending, to all of the merchandise, ticketing, and advertising deals that his name-brand brings. Also consider the increase in surrounding employment because of this man. Plenty of “middle class” jobs are created with Lebron’s presence – stadium employees, restaurant employees, and countless others are working more because of Lebron being in Miami.

With their playoff success, Miami’s season is extended by roughly 21 games, while Cleveland failed to make the playoffs for the first time in 5 years. Cleveland’s shortened season has likely cost the city millions in sales tax revenue and thousands of employable man-hours.

LeBron isn’t any different than executives, talented workers, or any entrepreneur. Tax rates influenced his decision and he took his talent, wealth, and jobs to a tax advantageous state. This isn’t rocket science to figure out, and yet states like California still naively think that they can raise taxes and not expect prosperous individuals to work less or migrate to other states. Unfortunately economic reality says otherwise.

Heat in 6.