Surprisingly enough, Mark and I have friends. Today we're proud to publish what was originally a facebook note by our mutual friend Ben. I won't speak for Mark, but this post requires about 100 times the brain power that I possess. So put your thinking caps on, and enjoy this guest writer's law school perspective on Albert Pujol's decision.
I get it Cleveland. I now understand what it must have been like to lose basketball's greatest player when Lebron left for Florida. Pujols leaving St. Louis has made me forget all about the World Series ring, and I am once again feeling the pain of cheering for small market team, something New Yorkers will never understand.
When Lebron made his decision, the tax implications got a good amount of attention. The Tax Foundation was quick to point out that though the Cavs were offering around $4 million more than the Heat, Lebron would actually be making more money to go to Florida because Florida does not impose any state income tax. When the Marlins first approached Pujols, I along with everyone else in St. Louis realized this might come into play again. But Albert rejected Miami's offer turning down $220 million of non taxable income. I thought this meant Pujols really wanted to stay in St. Louis after all, but not only did he leave, he bolted for an income tax rate almost double what he would have paid in St. Louis.
Missouri's top tax rate (which Albert obviously would have fallen into) is set at 6%, and the city imposes an additional 1% rate. This means that on the Cardinas' offer around $20 million a year, Albert would be paying about $1.4 million in tax. California on the other hand has a state income tax on millionaires of 10.3%. Yeah the Angels' offered more, but after taxes and increased living costs, Albert would be making a very negligible amount of money more than he would in St. Louis. Was Albert blinded by the high dollar figures? Did he even consider the different tax rates?
Actually, Albert's deal with the Angels demonstrates a great deal of sensitivity for potential tax rates. Yes, Albert would be paying taxes of 10.3% of his income by working in California, but it's worth remembering, that athletes only work half their time in their home city. When athletes travel to another state to play road games, they pay that state's taxes. Here is where Albert made all that money back.
A baseball player trying to figure out their tax liability should look at their division, not just the home city. Playing for the Cardinals in the National League Central means playing games in Illinois, Pennsylvania, Texas, Ohio, and Wisconsin. Only one of these states, Texas, has no state income taxes, and the one Texas team, the Houston Astros, brokered a deal to move them out of the NL Central and into the AL West beginning in 2013. It's probably not coincidence that Albert is also moving to the AL West. After the first year of Albert's ten year deal in southern California, the AL West will have three teams playing in states without income taxes: Seattle, Houston, and Arlington (Texas Rangers). The NL Central will have none. Thus, Albert Pujols might be paying 10.3% taxes on a little more than half of his games (the Athletics also play in California), but in about a quarter of his games, he will have no state income tax liability.
Pujols has been saying his whole career that its not about how much money anyone pays him. Well, that turned out to be true. It's about how much money they take away.
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