Love and Basketball, and the Millionaire Migration Myth
The Los Angeles Lakers and Golden State Warriors put on a show for NBA fans last night. The intrigue behind LeBron James and Stephen Curry, two of the NBA’s greatest players, meeting in a high-stakes matchup for the first time since their four straight Finals appearances from 2015–2018 did not disappoint. Curry finished the game with 37 points, shooting a remarkable 66 percent from three-point range, and James had a pedestrian triple-double with 22 points, 11 rebounds and 10 assists while hitting the game-winning three-point shot with a minute left, despite blurry vision from an earlier poke in the eye.
The night was full of all the drama you would expect from an important NBA game, but it also contained unexpected lessons on taxes and geography and the myth that millionaires choose where to live based on state tax rates. This is certainly not the case for the best basketball players in the world — and is also not true for rich people in general.
Last night’s matchup between Curry and James featured two California teams, a state with the highest personal income tax rate of 13.3 percent for the top bracket. James, who formerly played for the Miami Heat in a state with no personal income tax, found his way back to his birth state of Ohio to play for the Cleveland Cavaliers (4.8 percent top income bracket) before making his home in sunny Southern California. Stephen Curry was drafted to Golden State and has played his entire career for the Bay Area team, apparently unphased by the 13.3 percent top rate every time he renews his contract with the club.
Curry and James, with 5 of the league’s last 11 Most Valuable Player awards, may be singular basketball talents, but they’re not unique in choosing states with higher top tax rates. Except for Giannis Antetokounmpo who was drafted by the Milwaukee Bucks and has spent his entire career in Wisconsin (top rate of 7.65 percent ranked as the tenth highest in the country), every active player who has won a league MVP plays their home games in California (LeBron James and Stephen Curry), New York (Kevin Durant, James Harden and Derrick Rose), or Washington, D.C. (Russell Westbrook).
In 2020, New York had the seventh highest top marginal income tax rate at 8.82 percent, and D.C. ranked sixth at 8.95 percent. Russell Westbrook and James Harden were teammates on the Houston Rockets last year, where there is no state income tax, but were so frustrated with their situations they asked for trades. Harden specifically asked for a trade to Brooklyn to join another former teammate, Kevin Durant, who left the Oklahoma City Thunder (top income tax rate of 5 percent) for the Golden State Warriors before moving on to Brooklyn.
In the 2017 book, The Myth of Millionaire Tax Flight, author Cristobal Young argues that state politicians are “searching for a problem that doesn’t exist” when they lower taxes to try to keep millionaires in their states. After examining 13 years of tax returns that reported at least a million dollars of income, Young found that millionaires have a lower migration rate (2.4 percent) than the general population (2.9 percent). Just 0.3 percent of all millionaires in the country move to lower-tax states each year.
A more recent examination of IRS data by Carl Davis at the Institute on Taxation and Economic Policy found that California, New Jersey and New York all added millionaires to their populations in the first full year after enactment of the 2017 Trump tax law. This happened despite the law’s cap on federal deductions for state and local taxes that disproportionately affects the rich in these states.
So, as you’re enjoying the NBA playoffs this year watching the league’s best duke it out with spectacular play on the court, take a minute to think about how many of them have opted for these “high-tax states.” And just know, the minute you’re taking to think about it is probably more than the time they spent doing the same. They’re just out there trying to live their best lives, and there is much more to that than the top tax rate on multimillion-dollar contracts.