Income Tax-Free States' Abnormal Success in the NBA

While writing up my other blog post on how Florida’s lack of state Income Taxes influenced LeBron – I realized that Miami is facing Dallas, another income tax-free state, for the second time in five years. So I began to investigate a potential correlation between how income tax-free states have performed contrasted to high state income tax teams.

While it's obvious that teams can be successful with a high state income tax (Los Angeles Lakers being the obvious example), there are some interesting trends that would suggest that no state income tax teams perform better than high state income tax teams.

There are three income tax-free states with teams in the NBA (Texas, Florida and Tennessee), compiling for six teams. The three highest income tax-states in the US are New Jersey, New York, and California and there happen to be six teams in the NBA from these three states also.

Comparing these twelve teams’ success this past season can lead to interesting discoveries.

• Most notably, with the exception of the Los Angeles Lakers, all 6 of the tax-free states finished with a better regular season record than the 5 remaining high tax state teams.
• Five of the six tax-free teams made the playoffs, with Houston being the first team in the Western Conference not to make it.
• Three California teams (Sacramento, Golden State and LA Clippers) comprised for 3 of the 4 worst records in the Western Conference.
• New Jersey had the 3rd worst record in the Eastern Conference.

See a full breakdown of 12 teams' success over the 2010-2011 Season

Historically, success has been disproportionately achieved by tax-free teams in the NBA. Going back 20 years, which includes the dominant Michael Jordan Bulls and Kobe-Shaq Lakers’ dynasties, here are some facts:

• Tax-free states accounted for 40% of the previous championships, even though they comprised for 15% of the league during that time frame (Grizzlies moved to Memphis in 2001).
• The only high income tax state team to win a championship has been the Lakers.
• Depending on the outcome of this year's Finals, at least three teams from tax free states, maybe four, will have won an NBA title.
• All five of the the NBA teams from Texas and Florida have made the Finals on more than one occasion in the last 20 years.
  

What does this tell us? While these results aren’t the most scientific numbers, it’s hard to look at these stats and think that state income taxes don’t matter to players on some level when determining where to play. In 2009 Jason Kidd was a free agent and was heavily sought after by the New York Knicks. Kidd elected to sign with Dallas, and I am guessing that a 10% savings in taxes likely played into his decision process.

Like I said, the highly taxed Los Angeles Lakers have won the NBA title in 5 of the last 11 years so I’m not proposing that high taxes prevent a team from being successful. But on an aggregate level, there appears to be a definite correlation that state income tax-free teams have attracted better players than high tax states. And if NBA players’ decisions are impacted by tax rates, you can be certain that wealthy executives, business owners, and hard working American families will also take their talent, money, and jobs with them to tax-advantageous states.

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.

Lorena Gonzalez's Pathetic Attempt to Defend Marquez

An emblematic tweet from Lorena Gonzalez appeared today. It simply said... @TonyKrvaric why do you hate Latinos?

Really? Seriously that's your best argument? Play the race card? All of the dollars and staff from labor unions, and the best argument you can contrive is that Tony Krvaric hates Latinos?

This is literally straight out of the liberal playbook that Spencer Ackerman of the Washington Independent outlined in 2008 when trying to pickup Obama's image during the Jeremiah Wright issue... "take one of them — Fred Barnes, Karl Rove, who cares — and call them racists."

What this says is that Lorena and her Labor Union Liberal friends really have no answer to the irrefutable evidence that Carlos Marquez is not a resident of San Diego. And considering that Ms. Gonzalez is so determined to defend this man further proves that he is not just an active citizen, but rather a political operative advancing Labor Union causes.

It insults the intelligence of the people of San Diego to think that this effort against Marquez is motivated by race. It's a desperate and pathetic effort to shift the debate away from the real issue that Labor Unions have stacked up this redistricting committee with political operatives so that they can control the City Council with a 6-3 majority for the next ten years.

Dispelling the Public Sector Salary Myth

Here is an absolute first rate commentary by Daniel Bornstein dissecting the myth that public employees are compensated less than private sector folks. Included in this article is an amazing 100+ page study that should serve as a reference for many debates to come when having this discussion.

Bornstein's article: http://bit.ly/mdCIFO

Full study: http://www.docstoc.com/docs/78892940/pensionstudy