Tuesday, July 9, 2013

This Makes Recruiting Multi-State Talent More Difficult in California

Taxifornia: -$12,000,000  --  Dwight Howard: $8,000,000

NBA star Dwight Howard had no shortage of teams trying to sign him after a disappointing season with the Los Angeles Lakers. One factor likely influencing the All-Star center's decision to chose Houston (with no state income tax) over California is the Golden State's high tax rate.   

L.A.'s warm weather and beaches come at a price, namely a 13.3 percent top tax rate on personal income. How much of a difference does 13.3 percent make?
A lot.  
Using a direct comparison of the two salaries over four years, the Lakers with the excess cap space would be able to offer the higher payout at $91 million as opposed to Houston's $87.6 million.  After 4 years, Howard would pay $12 million in taxes if he remained in California; however, he would only pay $600,000 with a Texas-based team. 
Altogether, Howard will actually come out with $8 million more in income in Texas than he would have in L.A. 
For more on this, see: The Week and The Joy of Tax Law.