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.
It was the largest free-agent deal in the history of North American sports.
Harper will save tens of millions in taxes by signing with the Phillies instead of a California team.
“With a contract of that magnitude, it’s dramatic,” Scott Boras, Harper’s agent, says of the taxes. “It could be almost a full year’s compensation.”
“The Giants, Dodgers and Padres are in the worst state income tax jurisdiction in all of baseball,” Boras adds. “Players really get hit.”
No one sheds tears over the tax burdens of multimillionaire young men who are blessed with enough athleticism to become fabulously rich playing a game.
But many diehard fans undoubtedly moaned because Harper didn’t choose the Dodgers or Giants, two teams that made strong pitches for him.
The Giants reportedly offered 12 years and $312 million, but were told they’d need to ante up more to compensate for California’s tax hit. The Dodgers reportedly offered fewer years, but higher annual salaries.
Game-changing stars have the ability to choose teams in low-tax states — even in no-tax states like Texas or Washington.
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.”
Many factors enter into a player’s choice of a team. Net pay is just one.
Harper apparently also wanted to set a record for the biggest contract.
And the Phillies play at hitter-friendly Citizens Bank Park. The Giants’ Oracle Park can be miserable for hitters.
Moreover, Harper, a former Washington National, has played his entire big league career in the National League East division and feels comfortable there. He’s familiar with the ballparks and teams.
Ballplayers also naturally prefer winning teams. The Dodgers are, but the Giants have been pathetic.
High California taxes didn’t stop former Dodger Manny Machado from signing an astronomical 10-year, $300-million contract with the San Diego Padres last month. Maybe that was the best net offer he got. And maybe he just wanted to play ball in the nation’s best climate.
Boras notes that Harper got $30 million more than Machado, but calculates that when all taxes are figured, the new Phillies player will net around $55 million more.
California’s so-called jock tax for pro athletes can be complicated. Basically, a ballplayer is taxed for the amount of time he’s in the state.
If he’s an all-year California resident it’s fairly simple: His contract is taxed at the state rate.
But if he’s a non-resident, he gets taxed based on what the state calls “duty days.”
A non-resident lives elsewhere in the off season. And his wife and kids do all year. That’s Harper. He was raised and lives in Las Vegas. That’s the big reason the Dodgers thought they could lure him. Sorry, not enough millions.
A non-resident is taxed at the California rate for the 81 regular season home games. For the 81 away games, he’s taxed by the host team’s state. But that puts a California player in the National League West at a significant tax disadvantage because there are three division teams in this state: the Dodgers, Giants and Padres. The Dodgers will play 20 away games this season in California and the players will feel its tax bite.
Players for out-of-state teams also get taxed at the California rate when they play in our stadiums.
There’s a softer tax hit in the American League West. That’s because all division rivals for the Los Angeles Angels and the Oakland Athletics are in no-tax states: Seattle Mariners, Houston Astros and Texas Rangers.
“There’s a significant boost to players’ earnings being in the A.L. West vs. the N.L. West,” Boras says.
Repelling baseball stars isn’t the worst thing about California’s income tax. It’s simply terrible policy.
It relies too heavily on rich people’s capital gains, which tumble during downturns and drain the treasury, forcing sharp cuts in programs for the poor. At last count, the top 1% were paying 46% of the state income tax while earning 23% of the income.
But you don’t need to be rich to be thrust into a high tax bracket: $56,000 in taxable income will force a single person to pay at the 9.3% rate. Double that for couples.
And it just got much worse with Washington’s so-called reform that has capped state and local tax deductions on federal returns at $10,000. That makes California’s taxes even more onerous — not only for ballplayers but the middle class.
So whose fault is this? Sacramento Democrats orchestrated the enormous state taxes. Voters approved them. And Washington Republicans ruined them as deductions.