NBA Star Better Off Earning $31M Less In Texas, But Keeping $2.1M More
(CNSNews.com) – Los Angeles Lakers star Dwight Howard will wind up $2.1 million richer after accepting a $31 million lower contract offer from the Houston Rockets, Americans for Tax Reform reports.
Howard’s maximum contract with the Lakers would have been $119 million over five years, while the contract with Houston offers only $88 million over four years, according to estimates compiled by ATR.
ATR attributes the difference in Howard’s actual earnings to state income tax rates. Texas has no state income tax, while California’s rate is now 13.3% after last year’s approval of Proposition 30 (.Prop 30.pdf)
“This analysis shows that athletes can and do take state tax burdens into consideration when they’re deciding on free agency choices,” stated Ryan Ellis, ATR’s tax policy director.
ATR’s calculations include a 43.4 percent total tax burden (including federal taxes) and a $9.6 million tax liability under the Rockets agreement, leaving Howard $12.4 million in annual after-tax earnings. However, the Lakers contract would have resulted in a 56.7 percent tax burden on the NBA star, with a $13.5 million tax liability that would leave him with just $10.3 million in after-tax earnings.
“If Howard were to remain in Los Angeles, he would have to hand over his paycheck for five and a half home games to the State of California to cover his state tax liability. By signing with the Rockets, Howard does not have to worry about the state committing a flagrant foul against his earnings,” ATR noted.
When contacted by CNSNews.com for a comment, a Lakers spokesman said: “I have no idea, nor am I in the position to tell you what the reasons were for Dwight’s decision. This is something only Dwight or his representatives could tell you."