This post was originally published on Forbes Oct 5, 2015
When I was at the Bernie Sanders rally in Boston Saturday, I did not note anybody who was obviously a hockey fan. I didn't think anything of it at the time, but this report by the Canadian Taxpayers Federation being promoted by Americans For Tax Reform might offer a clue. The report is titled Major Penalty For High Taxes - How high-income taxes drive NHL players and high-income earners to lower tax jurisdictions. The subtle message of the report seems to be that people need to be careful about supporting high taxes on top earners, because it might make the local teams suck. Some might find the Bernie Sanders connection a bit tenuous, but I think there is something to it. A bit of background is in order, but in something of a spoiler, I will say that this particular study is long on ideology and short on support for its conclusion.
Not being much of sports fan, the implications of the surtax for professional athletics did not cross my mind, but I now realize to a reflective Boston sports fan, the implications might seem enormous. Massachusetts at 5.15% is kind of middle of the road for state income taxes and a real bargain compared to New York and California (I'm over-simplifying a bit because the Massachusetts base is on the broad side). A 4% add-on for millionaires would seriously erode the advantage. The New York state top rate is 8.82% (The NYC rate of 3.876% might help, but not so much with football which is played in New Jersey).
Players want to play for certain teams for a lot of reasons; the weather, the coach, the other players on the team … but they also consider the taxes they will have to pay. Like everyone else, NHL players don’t just care about how much they get paid, but how much they get to keep. High taxes might prevent your team from getting that key player it needs, but they also stop other high income earners from moving to your city.
The salary cap limits the ability of a wealthy team in a high-tax jurisdiction to attract top players by paying them more. The advantage of attracting players with higher pay shifts from wealthy teams to teams in low-tax jurisdictions.
The income tax calculations exclude “jock taxes,” which are additional income taxes charged by some American states on visiting players. Players may or may not be entitled to a tax credit in their home jurisdiction for the jock taxes paid elsewhere. Jock taxes make players’ taxes incredibly complicated — players may need to file more than a dozen tax returns.