As a recent blockbuster baseball deal showed, Louisiana legislators in the midst of studying an overhaul of the state’s tax system might want to consider rearranging things to boost sports performances that in turn could increase state and local tax revenues.
The Texas Rangers last week landed baseball’s best pitcher (when healthy) Jacob deGrom in free agency with a five-year, $185 million deal. When reviewing details of the deal, a major consideration why the Rangers outbid other clubs for his services was no state income tax in Texas. If the Lone Star State had the same tax system as the Bayou State, that deal to deGrom would have been worth (without any manipulations for tax avoidance) almost $4 million fewer (major leaguers nationwide are taxed half on their home state/country, the other half on the various state/country tax laws where they visit to play road games).
Legislators have met this fall to gather information on tax system reform, with many in the body articulating that a rate reduction, if not abolishment, of individual income taxation should be up to the plate. Among its neighbors, Texas and Tennessee have no state income tax, Mississippi has cut its recently and its governor wants elimination of it next year, and Arkansas and Oklahoma have joined Louisiana in recent reductions.
The deGrom example shows how favorable income tax policy can attract sporting talent. Even the minimum salaries for the major professional leagues with Louisiana franchises are several hundred thousand dollars above the level that drives those earners into the top 4.25 percent (down this year from 6) bracket. It even may help minor league sports such as in baseball where New Orleans has a franchise, whose top-grossing players not tied to a major league contract still make tens of thousands of dollars into the highest tax tier, although athlete choices for locations at this level are much more limited.
And it now extends potentially to collegiate athletes also. Since this summer, they received permission to pursue licensing deals for their names, images, and likenesses. Star wide receiver for Louisiana State University Kayshon Boutte cashed in for $1.4 million, but you don’t have to be one of the best in your sport to hit a big payday. LSU gymnast Livvy Dunne’s accomplishments on the floor are relatively modest to date, but her social media skills are so extraordinary she not only earns more than any other female collegiate athlete in NIL estimated at $2.3 million, but is in the top five of all amateur athletes and well ahead of far more accomplished female gymnasts such as the silver medalist in female earnings, Olympic gold medalist Suni Lee from Auburn.
So, both for professional athletes and college athletes who have the skills and ambitions to parlay NIL dollars, tax policy very much can influence their choices where to ply their trade or to pursue their educations. That’s good for win-loss records, but is it good for the state treasury, in that lower tax rates also mean fewer per filer bucks collected?
Besides the economic growth triggered by lower, if not zero, rates that adds to tax collections, athletic success also draws crowds who buy tickets and concessions and who will pay more for these to see winners, as well as attracting more media consumers who pay for subscriptions and advertising rates. This translates into higher sales tax collections for the state and local governments. These won’t compensate in total the impact of lower rates, but especially New Orleans and college towns may see more money in their coffers if lower marginal rate suck in better talent and more successful teams.
Tax policy is extremely complicated when considering changes. Income tax variations have the most impact on economic activity and increasingly, as athletes even amateurs find their average earnings rising, also on the quality of athletics. In a state particularly imbalanced by its passion for sports, one more element to the desirability to policy-makers of cutting marginal income tax rates might be the spillover of potentially improving home sports teams’ performances.
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