LeBron’s Taxing Decision

Mike Brownfield /

What would it take to lure basketball star LeBron James away from his hometown Cleveland Cavaliers to sign a contract with the Miami Heat? Believe it or not, taxes might have something to do with it, and that’s an important message for all levels of government.

In Florida, James’ new place of business, there is no income tax, and the superstar will see a big benefit in his bottom line for playing ball in a Heat jersey. James will make $1.014 million more in Miami than in Cleveland over the first five years of his contract, all as a result of differences in tax rates. (He would have paid $12.34 million in taxes over five years if he played with the Nets or the Knicks.)

But the economic impact of James’ decision does not begin and end with LeBron James. The Miami Herald reports that the Heat’s big score will net beaucoup bucks for the team:

It’s tantamount to signing the Beatles to a season-long engagement at our stadium,” said Scott Becher, president of Boca Raton-based Sports and Sponsorships.

You’re probably looking at $10 million or more in playoff revenue alone, not to mention maybe another $10 million on regular-season ticket sales, sponsorship and media sales.

That, in turn, means increased tax revenue for the City of Miami, the county and the state. Conversely, that also means an estimated $8.25 million loss of revenue in 2011 alone for the Cleveland Cavaliers, which in turn is a loss of revenue to the City of Cleveland and the State of Ohio, not to mention any associated businesses the would have benefited from James’ star power. The Knicks, too, could have reaped the benefits of signing James; one estimate pegged his value in ticket sales and advertising at $35 million by 2011-2012.

The LeBron James story, though, has a bigger picture message for government. Talent is valuable to the economy, and high taxes can have an impact on where talented people choose to live and work.

For example, James isn’t the first person to take a pass on living large in New York City. According to a 2009 study, New York state lost 1.5 million residents from 2000 to 2008, amounting to an 8 percent drop in population. Of those who left, 1.1 million were residents of New York City. Why the mass exodus? Taxes are a big factor.

The LeBron James lesson is one that states and local governments ought to learn — high taxes can drive out talent, leading to a loss in business (and tax revenue). But the federal government should take heed, too. At the end of this year, the 2001 and 2003 tax cuts will expire, leading to the largest tax hike the middle class has ever seen. Pro athletes aren’t the only people who don’t like paying high taxes; highly-skilled doctors, engineers and scientists considering a career in the United States just might take a look at the U.S. tax burden and choose to do business elsewhere.