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Taxing Drama Surrounds LeBron James Hoops Hoopla

Posted by Brett Davis - July 08, 2010

On a reductionist level, you and I may think it’s silly to pay a grown man—in this case, current NBA free agent LeBron James—millions upon millions of dollars to put a ball through a hoop. (We might also question the “King James” nickname, given that he hasn’t won an NBA championship.) Of course, I’m referencing the hype surrounding which NBA team James will decide to play for. That announcement will come during tonight’s one-hour ego massage of James disguised as an ESPN special.

 
While I really don’t care where James ends up playing hoops (after all, Seattle no longer has an NBA franchise), there’s a potential teachable moment about economic incentives in all of this. Check out this article from the Media & Business Institute, which details the state and local taxes James would pay, depending on where he ends up. According to the article, here’s the breakdown of what James would owe, assuming a five-year, $96 million contract:
 
New York: Playing for the Knicks would cost James $12.34 million in state and city taxes.

Florida: Signing with the Miami Heat would take the heat off James in terms of taxes, as the state has no income tax.

Ohio: If James were to re-sign with the Cleveland Cavaliers, he’d have to fork over $5.69 million in state taxes.

New Jersey: Joining the Nets means James would pay $10.32 million in state taxes.

James is reportedly leaning toward Miami. If that turns out to be the case, you’d have to think the fact Florida is income-tax free played an important part in James’ decision. It’s human nature. After all, people—even rich NBA superstars—like to keep more of the money they earn. LeBron James means big business for whatever city and state he graces his presence with, and it may turn out that high tax rates dissuaded the talented player from certain locations.

Even though Seattle no longer has a professional basketball franchise, there’s a larger lesson to be learned regarding the proposed income tax initiative that will almost certainly qualify for the ballot here in Washington state. The team that secures James will no doubt have a competitive advantage over other NBA squads. Likewise, by not having a state income tax, Washington enjoys a competitive advantage over many other states. Voters would do well to remember that this fall.

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