Tuesday, November 18, 2014

How High Taxes Can Create a Home Ice Disadvantage

Home Ice TaxDisadvantage is a joint study by the Canadian Taxpayers Foundation and the Americans for Tax Reform which studied the impact of taxes upon labor mobility by focusing on the 123 unrestricted NHL free agents during the 2014 off-season. The study accounted for the team salary spending, the personal tax rate and the "True Cap" which took into consideration these rates.

 Home Ice Tax Disadvantage discovered that 57% of the players who switched teams during that time period chose to migrate to lower tax jurisdictions. The 78 free agents who switched teams, cumulatively saved $7,951,784 in taxes. These choices are more marked when considering particular players' circumstances.

For example, Benoit Pouliot was moved from the New York Rangers to the Edmonton Oilers. Had Pouliot been offered the same deal in New York City, he would have paid $572,752 more in taxes. Jason Spezza had a no trade clause in his contract, which aided him when he moved from the Ottawa Senators to the Dallas Stars, where he now only pays $349,535 in taxes.  Yet P.A. Parenteau did not have a no-trade clause so when he moved from the Colorado Avalanche to the Montreal Canadiens, it cost him $349,352 in taxes to play for the 'Habs.  

Alberta had the lowest jurisdictional tax rate, so players for the Calgary Flames and the Edmonton Oilers only paid 38.5% in taxes.  Alberta's overall tax rate was lower than Southern U.S. states like Florida, Texas and Tennessee which boast no state income taxes.  The Los Angeles Kings pay the highest overall amount in taxes, forking over $27.8 million to Uncle Sam and $8.5 million to the state of California.  The Montreal Canadien players face the highest tax rate of 58.5%. 

As CTF Director of Research Jeff Bowes, who authored Home Ice Tax Disadvantage, put it:  

“The numbers don’t lie; NHL players take a financial hit to play in certain jurisdictions.  Obviously, there are other factors at play besides taxes, but the fact remains that disparities in tax rates leave some teams at a major disadvantage.”

The point of the study was not to study comparative advantage in the NHL or to stoke up class envy but to suggest that high tax jurisdictions are alienating skilled workers such as doctors, engineers or corporate executives  with onerous progressive taxation and prompting them to vote with their feet.  The ever increasing tax rates on the top tier of taxpayers may explain why places like New York and California keep losing businesses and population to locales like Texas and Florida.

H/T:  Americans for Tax Reform

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