Editorial: Golf and taxes
PHIL MICKELSON was right on
the money when he said the other day he might have to leave
California because of its new upper-income tax bracket of 13.3
When you add in the top federal rate of 39.6 percent, plus
all the Social Security, Medicare, self-employment and
disability taxes Mickelson has to pay — and considering that
his golf winnings and endorsement fees are all ordinary income
— the guy’s overall tax rate has probably surpassed 60
If he moved to Florida, Texas, Washington or one of the other
zero-income-tax states, his overall tax rate would fall
to less than 50 percent, and the difference would surely be
many millions of dollars a year for a guy like Mickelson.
Of course, he was instantly criticized by some commentators
for being selfish, greedy, whatever. Since that discussion —
like President Barack Obama’s obsession with calling for
“fair” taxes on the rich — involves a personal value judgment,
we’ll leave it up to you to decide whether there’s such a
thing as a moral obligation to pay the highest tax rate that
might apply to you.
But it is worth considering the economic policy implications
of Mickelson’s statement. And one thing is for sure: If
Mickelson decided to move to a jurisdiction with lower taxes,
he’d be following in some well worn footsteps.
In the early 1960s, British income tax rates were sky high, leading to a mass exodus of upper-income people from that country.
The Beatles didn’t just write about the phenomenon in their
1966 hit, “Taxman” (“Let me tell you how it will be ...
there’s one for you, 19 for me”), they did something about
it — they all left the country. So did many other
successful British musicians, including Phil Collins, Elton
John, Sting, Freddy Mercury, Rod Stewart and all the members
of the Rolling Stones. Likewise actors such as Sean Connery
and Michael Caine.
Meanwhile, U.S. companies with worldwide operations have
become very adept at moving their profits to low-tax countries
and their expenses to high-tax ones. The list includes GE,
Pfizer, Merck, Johnson & Johnson, Microsoft, Cisco Systems
and many others.
Nowadays, even for companies that operate strictly inside the
United States, it’s very common for them to set up shop in
states with low tax burdens. Any CEO would tell you he’d
rather open a new manufacturing plant in Texas or Arizona than
Two years ago, when NBC superstar LeBron James signed with
the Miami Heat for $17 million a year, instead of a rumored
offer of $19 million a year from the Knicks, it was widely
reported that he took the lower offer because he’d have paid
so much more in taxes if he lived in New York.
One of the interesting things about people and companies who
derive income from many sources is that they usually have to
pay taxes every place they earn it. A professional baseball
player, for example, may have to file 10 or 15 state tax
returns every year — one for each state where he played a
game. If he lived in California, he could take a credit for
the taxes paid to other jurisdictions, but since California
has the highest rate, he’d still owe taxes here on everything
he earned everywhere.
And that’s why so few golfers at this year’s AT&T Pebble
Beach National Pro-Am live in California. (It sure isn’t
because we have lousy weather and bad golf courses.) In fact,
as you can see from the tables that appear on page 17 RE, of
the top 50 lifetime PGA money-earners playing in this year’s
Pro-Am, more than half live in Nevada, Florida, Texas or
Arkansas — all states with no personal income tax. Only four
(and that includes Mickelson) live in California. And among
the all-time top 50 money winners on the PGA Tour, besides
Mickelson, just one lives in The Golden State.
So, despite Obama’s populist rhetoric, it’s indisputably true
that high tax rates can actually reduce government tax
revenues, and that they definitely discourage initiative and
hard work. For some people, it’s a matter of not putting in
extra hours or taking risks because the rewards aren’t high
enough. For others, it’s a matter of getting out of Dodge.
Or, as Tiger Woods said when he was asked about Mickelson’s
threat to leave California because of its tax rates, “I moved
out of here back in 1996 for that reason.”