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July 18, 2012

Lincome Tax Relief

 
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Jeremy Lin is one of the great stories of the past NBA season, rising from obscurity as an undrafted player from basketball powerhouse Harvard (cough) to stardom with the New York Knicks, becoming the first player in NBA history to score 20 points and 7 assists in each of his first five starts.

NBA free agency, however, has led Lin to take his talents to the Houston Rockets.

Americans for Tax Reform (ATR) has calculated that Lin will save over $1 million a year--$3.12 million over the life of his contract—simply by playing for Houston rather than New York.  And Lin’s savings will increase when you factor in his inevitable endorsements.

This savings is due to the fact that Texas has no state income tax, and neither does the city of Houston. In New York, however, Lin would have paid $323,034 per year in state income taxes, and a whopping $717,382 per year in New York City taxes.

Now, of course, professional athletes consider a number of factors in deciding where they will play, and they are notorious for weighing other factors above and beyond the tax ramifications of their decision.

In fact, if taxes alone determined the destination of free agents, Texas teams would likely dominate professional sports, in much the same way that states without income taxes are dominating their competitors.

According to an annual analysis by Stephen Moore and Art Laffer:

  • In terms of gross state product growth, the nine states without a personal income tax outperformed the nine states with the highest personal income tax by 39 percent over the past decade.
  • The nine states without a personal income tax have outperformed the U.S. average by over 25 percent over the past decade.
  • Average population growth among the nine no-tax states was 148 percent higher than in the nine high tax states over the past decade.

 

It seems, as many of us have argued for a long time, that people respond more or less rationally to tax incentives, moving themselves and their production to lower tax states. Additionally, it seems that income taxes provide spenders in the states with a revenue source that contributes to the growth of state government spending to a much greater degree than do sales taxes.

 




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