Will New York’s high income tax rate hurt the Knicks’ chances of signing LeBron James?

Victor Joecks

Will we witness state taxes influencing where Lebron James plays basketball?

Will we witness state taxes influencing where LeBron James plays basketball?

Forgive the intersection of sports and politics, but this is an interesting case study for how taxes influence decisions.

For those of you who don’t read ESPN everyday, LeBron James is the biggest free agent on the NBA market, and where he decides to sign will significantly affect the league for the next few years. He’s so good that for the last two years, the New York Knicks traded the majority of their team (and lost a lot of games) in order to clear cap space to sign LeBron and another big-name free agent this summer. Chicago, Miami and Cleveland are also considered to be “in the running” to sign him.

One factor (of many) in his decision is going to be money. Because of the NBA salary cap, he’s either going to be making $95 million over five years or $125 million over six years (if he signs with his current team, the Cleveland Cavaliers, or signs with the Cavs and is traded). LeBron also makes about $25 million a year in endorsements, which is likely to increase.

But while the amount LeBron is paid would be the same in each of his potential destinations, the amount he will receive will vary greatly. Why? Because while Florida doesn’t have an income tax, New York’s personal income tax is 8.97 percent and the rate in New York City is 12.62 percent (include the state income tax). And now, New York politicians want to raise the rate even further.

New York Assembly Speaker Sheldon Silver is reportedly pitching a plan for an increased “millionaire’s tax” aimed at 75-85 thousand New Yorkers making $1 million or more a year…

The plan would jack up a current millionaires tax another 11-percent. The current “millionaire’s tax” actually starts affecting people who have incomes over $200,000. High income tax earners would pay more than 13-percent of their salary in local taxes.

Let’s do the math. At 13 percent, LeBron James would pay over $35 million in state income taxes alone over the next six years (with current endorsement amounts). Add to that a 35 percent federal tax rate and 6.2 percent tax for social security, and if LeBron goes to New York, after taxes he’ll end up with less than half of what he earns.

Now, influencing Lebron’s decision will undoubtedly be many factors – basketball, winning, loyalty, branding – but one factor that no one’s talking about is the tax burden that would come with his potential destinations. And since LeBron wants to build himself into a billion-dollar brand, losing 13 percent of his income that he wouldn’t be losing in Florida is something he and his financial advisors will likely consider.

LeBron isn’t the only businessman who’s influenced by taxes. Millionaires have been leaving New York and other high-tax states for years.