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Posts Tagged ‘Football’

My friends on the left hold two impossible-to-reconcile views about taxation.

  • First, they say taxes don’t really have any effect on incentives to work, save and invest, and that governments can impose high tax rates and punitive double taxation without causing meaningful economic damage or loss of national competitiveness.
  • Second, they say differences in taxes between jurisdictions will cause massive tax-avoidance behavior as jobs and investment migrate to places with lower taxes, and that national and international tax harmonization is required to prevent that ostensibly horrible outcome.

Huh?!? They’re basically asserting that taxes simultaneously have no effect on taxpayer behavior and lots of effect on taxpayer behavior.

Well, they’re half right.

Taxpayers do respond to incentives. And when tax rates are too high, both money and people will escape high-tax regimes.

In other words, people do “vote with their feet.”

And it seems pro athletes are not “dumb jocks” when contemplating the best places to sign contracts.

Looking at baseball, taxes presumably had an effect on Bryce Harper’s decision to play for the Phillies.

For Major League Baseball players, three teams are at the bottom of the standings on state taxes: the Los Angeles Dodgers, San Diego Padres and San Francisco Giants. That’s because California is in a league of its own on personal income taxes. We’ve got by far the highest state rate in the nation, topping out at 13.3%. By contrast, Pennsylvania has a low flat rate for every taxpayer regardless of income. It’s just 3.07%. That’s one reason why superstar slugger Bryce Harper signed an eye-popping 13-year, $330-million contract last week with the Philadelphia Phillies, spurning the Dodgers and Giants. …Harper will save tens of millions in taxes by signing with the Phillies instead of a California team. …“The Giants, Dodgers and Padres are in the worst state income tax jurisdiction in all of baseball,” Boras adds. “Players really get hit.” …To what extent do California’s sky-high taxes drive players away? “It’s a red light,” agent John Boggs says. “I’ve had players in the past say they don’t want to go to certain states because they’re going to get hammered by taxes. Obviously, that affects the bottom line.”

Another argument for states to join the flat tax club!

If we cross the Atlantic Ocean, we find lots of evidence that high tax rates in Europe create major headaches in the world of sports.

For example, I’ve previously written about how the absence of an income tax gives the Monaco team a significant advantage competing in the French soccer league.

And there are many other examples from Europe dealing with soccer and taxation.

According to a BBC report, we should highlight the impact on both players and management in Spain.

Ex-Manchester United boss José Mourinho has agreed a prison term in Spain for tax fraud but will not go to jail. A one-year prison sentence will instead be exchanged for a fine of €182,500 (£160,160). That will be added to a separate fine of €2m. …He was accused of owing €3.3m to Spanish tax authorities from his time managing Real Madrid in 2011-2012. Prosecutors said he had created offshore companies to manage his image rights and hide the earnings from tax officials. …In January, Cristiano Ronaldo accepted a fine of €18.8m and a suspended 23-month jail sentence, in a case which was also centred around tax owed on image rights. …Another former Real Madrid star, Xabi Alonso, is also facing charges over alleged tax fraud amounting to about €2m, though he denies any wrongdoing. Marcelo Vieira, who still plays for the club, accepted a four-month suspended jail sentence last September over his use of foreign firms to handle almost half a million euros in earnings. Barcelona’s Lionel Messi and Neymar have also found themselves embroiled in legal battles with the Spanish tax authorities.

Let’s cross the Atlantic again and look at the National Football League.

Consider Christian Wilkins, who was just drafted in the first round by the NFL’s Miami Dolphins. He’s very aware of how lucky he is to have been picked by a football team in a state with no income tax.

The Miami Dolphins picked Clemson defensive tackle Christian Wilkins with the 13th overall pick in Thursday night’s first round of the NFL draft. …He’ll be counted on to help usher in a new era of Miami football under first-year head coach Brian Flores. …Wilkins said he “knew they were interested” in him and is happy to be headed to Miami. He also joked that he’s happy he’ll be playing football in Florida, where there is no state income tax. “Pretty excited about them taxes,” he said. “A lot of guys who went before me, I might be making just a little bit more, but hey, it is what it is.”

As he noted, his contract may not be as big as some of the players drafted above him, but he may wind up with more take-home pay since Florida is a fiscally responsible state.

College players have no control over which team drafts them, so Wilkins truly is lucky.

Players in free agency, by contrast, can pick and choose their new team.

And if we travel up the Atlantic coast from Miami to Jacksonville, we can read about how the Jaguars – both players and management – understand how they’re net beneficiaries of being in a no-income tax state.

Hayden Hurst got excited after he received a phone call from someone he trusted who told him the Jaguars were targeting him with the No. 29 overall pick. …Though Hurst…was happy when the Baltimore Ravens took him four slots before the Jaguars, he also knew in advance of the financial consequences that most rookies don’t notice. Since Florida is one of four NFL states (Tennessee, Texas and Washington being the others) with no state income tax, Hurst, who played at South Carolina, understood he’d see a big chunk of his $6.1 million signing bonus disappear on the deduction line when he received his first bonus check. …“I thought about how much of my money was going to be impacted depending on which state I played in,” Hurst said. “I’m paying a pretty hefty percent up in Maryland. To see the amount get taken away right off the bat kind of hurt, it was pretty sickening.” With the NFL free agent market set to open Wednesday, Hurst’s situation illustrates a potential competitive advantage for the Jaguars of being in an income tax-free state when they court free agents.

Yes, the flat tax club is good, but the no-income-tax club is even better.

I’ll close with an observation. Way back in 2009, I speculated that high tax rates could actually hurt the performance of teams in high-tax states.

It turns out I was right, as you can see from academic research I cited in 2017 and 2018.

The bottom line is that teams in high-tax states can still sign big-name players, but they have to pay more to compensate for taxes. And this presumably means less money for other players, thus lowering overall quality (and also lowering average win totals).

P.S. I normally only cheer for NFL athletes who played for my beloved Georgia Bulldogs, but I now have a soft spot in my heart for Christian Wilkins (just like Evan Mathis).

P.P.S. I also have plenty of sympathy for Cam Newton, who paid a tax rate of almost 200 percent on the income he earned for playing in the 2016 Super Bowl.

P.P.P.S. Taxes also impact choices on how often to box and where to box.

P.P.P.P.S. And where to run track.

P.P.P.P.P.S. And where to play basketball.

P.P.P.P.P.P.S. While one can argue that there are no meaningful economic consequences if athletes avoid jurisdictions with bad tax law, can the same be said if we have evidence that high tax burdens deter superstar inventors and entrepreneurs?

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I’ve written about how taxes have a big impact on soccer (a quaint game with little or no scoring that Europeans play with their feet).

Taxes affect both the decisions of players and the success of teams.

Grasping and greedy governments also have an impact on football. Especially if teams play in Europe.

…the Los Angeles Chargers and Tennessee Titans traveled across the Atlantic to play a game in London’s Wembley Stadium. …Players spoke of the burdens of traveling so far to play a game, especially the team from California that had to cross eight time zones. Players also spoke out about the tax nightmare they faced when they got to the UK. …players talked ahead of time to their CPAs to determine the tax hit they’d take for the privilege of such a long road trip… Great Britain…levies high taxes on athletes who visit for an athletic match. Teams from California — the Raiders, Chargers, and Rams — already face the highest state income tax in the nation with a top rate of 13.3 percent. Of course, players also have to pay federal income tax. …To top it all off, those players who receive one of their 16 paychecks in London pay a 45 percent tax on a prorated amount based on the number of days they spend in the country. Bottom line: Players on California teams could end up paying 60 percent or more in income taxes for that game check. …For non-resident foreign athletes, HM Revenue and Customs (HMRC) reserves the right to tax not only the income they earn from competing in the match but a portion of any endorsement money they earn worldwide.

No wonder some of the world’s top athletes don’t want to compete in the United Kingdom.

And what about the NFL players, who got hit with a 60 percent tax rate for one game?

Those players are lucky they’re not Cam Newton, who paid a 198.8 percent tax for playing in the 2016 Super Bowl.

Last year’s tax bill also impacts professional football in a negative way. The IRS has decided that sports teams don’t count as “pass-through” businesses, as noted by Accounting Today.

Two major sports franchises might soon be on the auction block following Microsoft Corp. co-founder Paul Allen’s death last week. But a recent Internal Revenue Service rule could cut the teams’ sales prices. Allen died with no heirs and a $26 billion estate, including the National Football League’s Seattle Seahawks… The teams together are worth more than $3 billion, according to the Bloomberg Billionaires Index. …the IRS said in August that team owners would be barred from the write-off — one of the biggest benefits in the law — that allows owners of pass-through entities such as partnerships and limited liability companies to deduct as much as 20 percent of their taxable income. …Arthur Hazlitt, a tax partner at O’Melveny & Myers LLP in New York who provided the tax structure and planning advice for hedge fund manager David Tepper’s acquisition of the Carolina Panthers, estimates the IRS rules could spur potential bidders to offer at least tens of millions of dollars less.

Gee, what a surprise. Higher tax burdens lower the value of income-producing assets.

Something to keep in mind next them there’s a debate on whether we should be double-taxing dividends and capital gains.

Or the death tax.

Let’s close with a report from Bloomberg about some new research about the impact of taxes on team performance.

The 2017 law could put teams in states with high personal income tax rates at a disadvantage when negotiating with free agents thanks to new limits on deductions, including for state and local taxes, according to tax economist Matthias Petutschnig of the Vienna University of Economics and Business. Petutschnig’s research into team performance over more than two decades shows that National Football League franchises based in high-tax states lost more games on average during the regular season compared to teams in low or no-tax states. That’s because of the NFL’s salary cap for teams, according to Petutschnig; if they have to give certain players more money to compensate for higher taxes, it reduces how much they pay other players and lowers the team’s overall talent level. “The new tax law exacerbates my findings and makes it harder for high-tax teams to put together a high-quality roster,” Petutschnig said.

Here’s a chart from the article.

And here are more details.

A player for the Miami Dolphins or Houston Texans, where no state income taxes are levied, “was always going to come out a whole lot better than somebody playing in New York,” said Jerome Glickman, a director at accounting firm Friedman LLP who works with professional athletes. “Now, it’s worse.” …a free agent considering a California team compared to a team in Texas or Florida would need to make 10 percent to 12 percent more to compensate for his state tax bill, said NFL agent Joe Linta… the Raiders — who will eventually move to Las Vegas in no-tax Nevada — have often made the case that unequal tax rates create an uneven playing field. Quarterback Jimmy Garoppolo’s five-year $137.5 million contract with the San Francisco 49ers will mean an additional $3 million tax bill under the new tax law… Garoppolo would have saved $2 million in taxes under the new code had he instead signed with the Denver Broncos in lower-tax Colorado.

By the way, other scholars have reached similar conclusions, so Professor Petutschnig’s research should be viewed as yet another addition to the powerful body of evidence about the harmful effect of punitive tax policy.

P.S. I think nations have the right to tax income earned inside their borders, so I’m not theoretically opposed to the U.K. taxing athletes who earn income on British soil. But I don’t favor punitive rates. And I don’t think the IRS should add injury to injury by then taxing the same income. That lesson even applies to royalty.

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Having just done a blog post where I explained that government should stay neutral in fights between labor and management in the private sector, let’s look at a real-world example to understand why.

The millionaire owners and millionaire players from the National Football League are locked in a labor dispute. This is somewhat understandable since there are ten of millions of dollars of profit available and both sides obviously have an interest in getting the biggest slice of that income.

I don’t care who wins, but government has no role in this squabble (or in discussions about college football championships).

In a free society, people have the right to sign contracts. But freedom also means they have a right to not sign contracts. Indeed, these principle of self-ownership and control over property are key defining characteristic of liberty.

That’s why it is disappointing that the players are trying to get the government to tilt the playing field in their direction. Led by big-name stars (for PR value), the players are going to court in hopes of getting the government to use misguided and coercive antitrust laws to hamstring the negotiating position of owners.

The market should determine the outcome of this dispute, however, not the sordid world of government and politics. The players do not have a right to jobs with NFL teams, just as NFL teams do not have a right to force people into playing football.

Yes, it is a “restraint on trade” for NFL owners to not sign contracts, but it is also a “restraint of trade” for top athletes to choose not to play. But this simply illustrates why antitrust laws are so foolish and so inconsistent with the freedom of contract.

Here’s a blurb from the Associated Press report.

…quarterbacks Tom Brady, Peyton Manning and Drew Brees were among 10 players who sued the NFL in federal court Friday, accusing the league of conspiracy and anticompetitive practices that date back years. Their lawsuit asked the court to prevent a lockout. …They filed a request for an injunction that would keep the NFL and the teams from engaging in a lockout. Invoking the Sherman Act, a federal antitrust statute from 1890 that limits monopolies and restrictions on commerce, the players said they were entitled to triple the amount of any damages they’ve incurred. …The players accused the 32 NFL teams of conspiring to deny their ability to market their services “through a patently unlawful group boycott and price-fixing arrangement or, in the alternative, a unilaterally imposed set of anticompetitive restrictions on player movement, free agency and competitive market freedom.” The collective bargaining agreement with the league was expiring Friday.

One caveat. The title of this post says there is no role for government, but that’s not completely true. The courts have a role as neutral arbiters if there is a dispute about whether one side or the other has failed to live up to the terms of a voluntary contract. Though I suppose my caveat has a caveat since the two sides also could pick a private arbitration service to be the neutral judge of any dispute.

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Maybe I have an outdated copy, but I don’t see college football listed in the enumerated powers of the Congress. And it doesn’t seem to be mentioned in any of the amendments. Yet the busybodies in Washington now want to exert their control over how the college football national championship is decided?!? Somebody needs to tell them to go jump in a lake. Here’s a report from Sports Illustrated:

The Obama administration is considering several steps that would review the legality of the controversial Bowl Championship Series, the Justice Department said in a letter Friday to a senator who had asked for an antitrust review. In the letter to Sen. Orrin Hatch, obtained by The Associated Press, Assistant Attorney General Ronald Weich wrote that the Justice Department is reviewing Hatch’s request and other materials to determine whether to open an investigation into whether the BCS violates antitrust laws. “Importantly, and in addition, the administration also is exploring other options that might be available to address concerns with the college football postseason,” Weich wrote, including asking the Federal Trade Commission to review the legality of the BCS under consumer protection laws. …”The administration shares your belief that the current lack of a college football national championship playoff with respect to the highest division of college football … raises important questions affecting millions of fans, colleges and universities, players and other interested parties,” Weich wrote.

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