Last weekend, Phil Mickelson threatened to move out of California over the onerous tax hikes imposed by Jerry Brown and the Democratic supermajority in Sacramento. Mickelson later apologized for his outburst, although I’m not sure why; he has just as much right to complain as anyone else. CNN Money later attempted to correct Mickelson, saying that his total tax rate was somewhere around 53%, not 62%, but I’m not sure that was much comfort, nor an effective rebuttal to Mickelson’s point.
As it turns out, Mickelson’s not the only sports entity looking at a Golden Gate exit. Forbes noted that one big beneficiary of Brown’s tax hike on high-end earners could be Seattle, which has been without a basketball team since 2008. Microsoft’s Steve Ballmer heads up a group bidding to purchase the Kings, who play in California’s capital Sacramento, and taxes are certainly part of that puzzle:
On Monday morning, the Seattle Times reported that a Seattle group helmed by hedge-fund manager Chris Hansen and Microsoft CEO Steve Ballmer agreed to purchase the Sacramento Kings. Pending approval from the NBA Board of Governors, the team would move to Seattle and play its first season as the SuperSonics this fall.
There are many reasons for teams to relocate, and the built-in Seattle fan base is certainly a plus for this NBA team. However, it is crucial to remember that sports franchises are multi-million dollar businesses. Those who occupy the front office spend a lot of time scrutinizing the finances. From this perspective, a move from California to Washington State is a no-brainer. The marginal personal-income tax rate for wealthy Californians – a category under which professional ballplayers almost certainly fall – is a whopping 13.3 percent. Washington, on the other hand, levies no personal income tax on any of its residents. Whether a member of the SuperSonics organization is shooting free-throws or taking tickets, he gets to keep more of his earned income.
Furthermore, Seattle has already been a big recipient of California’s tax policies:
Professional sports teams aren’t the only organizations ditching California for Washington’s friendlier tax climate. According to migration data from the Internal Revenue Service, over the 15-year period from 1995 to 2010, King County (where Seattle is located) has gained $32 million in adjusted gross income from Sacramento County. Other California counties have added significant amounts to King County’s coffers, too. During those same 15 years, Orange County lost $98 million in net AGI to King County. Los Angeles saw a huge hit, with King County gaining $313 million of Los Angelenos’ net AGI.
Clearly, investors like Chris Hansen and Steve Ballmer understand that personal income is one of our most precious and most highly mobile assets. For the Kings, the move to Seattle is one for the win column. For Sacramento, it’s yet another loss, provoked by a growth-stifling tax climate. Seattleites are no doubt looking forward to cheering for the SuperSonics this fall.
How has California reacted to this example of free-market economics? Have they decided to lower taxes and broaden the tax base to make the business environment more inviting? Perhaps reduced the red tape that turns every expansion into a years-long project, which only takes weeks in other states? Not exactly. No, they’ve decided to go the “nice business ya have there — wouldn’t want anything to happen to it” route:
Senate President Pro Tem Darrell Steinberg is not backing down from a request for information about Microsoft’s dealings with California, a gesture that many interpreted as a warning to prospective Sacramento Kings buyer and Microsoft CEO Steve Ballmer.
After reports emerged that Ballmer was one of the investors seeking to purchase the Kings and relocate them to Seattle, Steinberg sent a letter to the Department of General Services asking for data about California’s contracts with Microsoft and the monetary value of the state’s past purchases from the technology giant.
Steinberg faced criticism from those who said he was unfairly bullying Ballmer and endangering a lucrative partnership. But Steinberg defended his move on Thursday as a service to constituents and said he would press on.
“There’s something that doesn’t feel right about making money working directly with the state of California – in fact, having some of their largest contracts with the state of California – and at the same time using at least some of those gains or profits to try to move a major asset out of the state of California in its capital city,” Steinberg said after emerging from a closed-door meeting about the Kings with Sacramento mayor Kevin Johnson and other lawmakers on Thursday.
It takes quite a bit to generate sympathy for Microsoft, but this qualifies. Using the power of the state to interfere with a private sale — and one based in large part on the ridiculous policies championed by politicians like Steinberg himself — makes it clear that California isn’t in the governing business any longer. They’re running a protection racket.
Small wonder Mickelson wants out of California. I’m not sure why anyone else would want to stay, frankly.