LeBron James Decision Influenced by Taxes?

There is a theory making the rounds that one of the factors that influenced LeBron James' decision to sign with the Miami Heat over his hometown Cleveland Cavaliers is the amount of state-level taxes he would pay on his income.

"While sports reporters have sought agents and teammates for the inside scoop on where NBA superstar free agent LeBron James will sign, there’s another person who may know The King’s next move: his accountant.

In a July 1 blog post, the New York Post warned that “dysfunctional lawmakers in Albany” could cost the state a chance to bring the coveted athlete to New York.

“If LeBron James goes to the Miami Heat instead of the [New York] Knicks, blame our dysfunctional lawmakers in Albany, who have saddled top-earning New Yorkers with the highest state and city income taxes in the nation, soon to be 12.85 percent on top of the IRS bite,” the Post said.

The tax savings for James in Miami over New York City would be staggering, according to the Post’s analysis.

“On a five-year contract worth $96 million -- what he'd get from the Knicks or the Heat -- LeBron would pay $12.34 million in New York taxes.” Florida has no state income tax."

Of course, LeBron James reportedly passed up more money in salary just to join the Miami Heat (compared to what Cleveland and the New York Knicks were prepared to pay him), so his personal tax surely wasn't the entire reason or even the main reason for signing with Miami.

And while it is true that Florida imposes no state-level income tax on individuals, roughly half of his games in the upcoming NBA season will be played out of state, meaning the income he generates from playing in professional basketball games in other states that do have an income tax will be subject to state-level tax in those state. However, all in all figure roughly half his salary will be free of state income tax.

Consequently, it's very likely that the ability to save money in taxes had some bearing on LeBron's decision on which team to sign with and at least in part offset the "discount" he had to give Miami in order to be able to sign with them.

Which goes to show that, at the margin, the amount of taxes that one has to pay clearly affects the choices that individuals make in deciding when and what to buy and invest in, which is a lesson that many politicians conveniently ignore.