Basketball star Dwight Howard has spurned a five-year $118 million offer from the Los Angeles Lakers, a franchise whose storied history has included some of the greatest players to ever play the game, in favor of a four-year $88 million offer from the rebuilding Houston Rockets.
Speculation abounds regarding the reasoning behind Howard’s choice: He didn’t get along with Lakers' star Kobe Bryant. He didn’t like the coach. The Lakers’ owner didn’t hire Phil Jackson. He would rather play with young players than the older cast of Lakers' veterans.
Consensus seems to be that personality and outside factors MUST have played a larger role than economic ones. How else would accepting a lower offer from a lower profile team be a good career move?
Assuming Howard has a competent financial advisor, a theory that merits strong consideration is that marginal tax rates were a factor in the ultimate decision. Perhaps Lakers' fans burning Howard’s jersey should focus their anger on California Gov. Jerry Brown and the liberals that have run state government in Sacramento for two decades.
California’s tax rates eliminated the advantage of the Lakers’ larger financial offer and allowed Howard to accept employment with a younger and arguably more promising team without sacrificing much additional income.
In California, Howard would face a state income tax of 13.3 percent, versus NO state income tax in Texas. That reduces the Laker offer to Howard from $118 million to roughly $103 million. While still larger than the offer of the Rockets, it’s not nearly the windfall it originally appears to be and makes the other factors of the decision weigh a bit heavier.
But according to the Obama administration and most liberals, marginal rates have no impact on taxpayers’ behavior; despite the fact that California’s tax burdens have been causing high income taxpayers to leave the state for years in favor of low tax destinations such as Arizona, Nevada and Wyoming.
According to the California Taxpayers Association, between the years 2007 and 2009,
Californians reporting adjusted gross incomes of $500,000 or more dropped by nearly a third. If marginal tax rates did weigh on his decision, Dwight Howard is just the latest example of the logical taxpayers fleeing a burdensome tax environment for greener pastures.
According to Travis H. Brown, author of the book, “How Money Walks: How $2 Trillion Moved Between the States and Why it Matters,” this is a long-term trend.
Brown notes a similar 15 year national pattern.
“Taxpayers are fleeing from high tax states like California and flocking to low tax states like Nevada or Texas,” according to Brown. “The performance of states with no personal income tax is amazing — over $146 billion of net gain of adjusted gross income.”
Clueless as usual, Governor Brown’s administration responded to California’s latest revenue shortfall by raising rates again on the wealthiest taxpayers, this time retroactively to the current 12.3 percent plus a 1 percent surcharge for mental health services for a total marginal rate of 13.3 percent.
Sadly, California voters approved the proposal by referendum in November, 2012. Raise your hand if you think these taxpayers will voluntarily pay the highest rates in the nation if they can avoid the increase by moving or otherwise rearranging their economic affairs.
Tax rates become a much bigger problem when the Obama administration and the federal government apply the same logic nationally with the effect of impeding economic growth and job creation across the nation. Obama’s economic “recovery” plods along at 2 percent and unemployment remains stubbornly high.
After four years in office, the administration has nothing to blame for the slow pace of the recovery but its own regressive policies of tax increases and the addition of huge regulatory burdens imposed by Obamacare, Dodd Frank, and the EPA.
Distinctly different policies are being implemented in Republican-led states across the nation, resulting in record setting economic growth. Obama has a million excuses for his sorry record, but facts are stubborn things.
Growth oriented policies could finally restore the dynamic economy and optimism that were once the hallmarks of America.
Frank Donatelli is chairman of GOPAC, an organization dedicated to educating and electing the next generation of Republican leaders. He was also White House political director for President Ronald Reagan.
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