Dwight Howard has no shortage of suitors trying to court him after a disappointing season with the Los Angeles Lakers. One factor that could influence the All-Star center's decision: California's high taxes.
L.A.'s warm weather and beaches come at a price, namely a 13.3 percent top tax rate on personal income. Howard's two most likely options if he doesn't re-sign with the Lakers — the Dallas Mavericks and Houston Rockets — are located in Texas, which has no state income tax.
How much of a difference does 13.3 percent make?
Plenty if you're pulling in $118 million, the max the Lakers can pay Howard for a five-year contract. Other teams can offer Howard a four-year, $87.6 million contract.
Using a direct comparison of the two salaries over four years, it would seem that the Lakers can offer Howard $6.8 million more than the Rockets or Mavericks. But if you take taxes into account, it turns out that Howard would actually make $2.6 million more in Texas, Robert Raiola, a certified public accountant who deals with athletes, tells ESPN.
(Note that professional athletes are taxed according to which states they train and compete in, meaning that if Howard plays a game in Portland against the Trailblazers, he pays the Oregon state income tax for that time. Still, wherever athletes claim residence determines the bulk of their state income tax bill.)
The question is whether that $2.6 million is enough to lure Howard away from Los Angeles. If he was riding high off a championship, probably not. But considering that the Rockets can offer him a more competitive salary with a rising superstar, James Harden, and a pathway cleared by Yao Ming to lucrative Chinese sponsorships, there doesn't seem to be much incentive for Howard to stay in Los Angeles.
In fact, according to a study published in the Journal of Sports Economics, "an increase in the relative income tax rates faced by players on a given team leads to a decrease in the average skill of the free agents that team is able to sign," even accounting for "observable characteristics of teams, cities, and states."
That might explain how the Miami Heat, located in Florida, which also has no personal state income tax, was able to attract LeBron James from Cleveland. Granted, there are plenty of reasons someone would want to live in Miami instead of Cleveland, but the fact that James actually makes more with the Heat than he would have with the Cavaliers, despite the offer of a bigger contract, certainly couldn't have hurt Miami's chances.
Of course, there are legendary teams in bustling cities, e.g. the Lakers and New York Knicks, that will always be able to attract top talent. However, struggling teams in less glamorous, high-tax areas (we're looking at you, Minnesota Timberwolves) might find themselves continuously losing players to teams in Texas and Florida.