How State Income Tax Rates Affect NBA Outcomes
Drew Johnson of the Taxpayers Protection Alliance has a great post about how state and local income tax rates determine winners and losers in the NBA. Here are some key excerpts:
There is a clear pattern of talented players migrating to, or staying with, teams in states with little or no personal income tax. Since they can more easily attract and keep better players, teams in states with lower taxes have consistently performed better on the court than teams in highly taxed states in recent seasons.
Over the past seven years, teams based in the 10 lowest taxed cities in the NBA reached the NBA Finals seven times, winning four championships (Dallas, Miami and San Antonio, twice). In contrast, only three times did one of the 10 teams that play in the NBA markets with the highest income tax burdens reach the Finals.
The trend continued this season when seven of the teams located in the NBA’s 10 lowest taxed cities made the playoffs. This year’s playoffs featured only three teams in the 10 highest taxed NBA cities. During the 2010-11 NBA season, the 10 teams playing in the cities with the lowest income tax burden averaged a stout 57.8% winning percentage. The 10 teams playing in the cities with the highest income tax burden combined for a paltry 39.3% winning percentage."
MP: The chart above (click to enlarge) displays a regression analysis that supports Drew's findings (each blue dot represents an NBA team). For the 2010-2011 season there was a statistically significant negative relationship (at the 1% level) between: a) the winning percentage for NBA teams, and b) the combined state and local income tax rates for an NBA team's home state. That is, the higher (lower) the income tax burden of an NBA team's home state the lower (higher) the winning percentage for that team.
From the regression equation, we can quantify the relationship as follows: For every one percentage point increase (decrease) in the combined state and local income tax rate in the state of an NBA team, the winning percentage of that team decreases (increases) by 2.33 percentage points (and that relationship is statistically significant at the 1% level, with a t-statistic of 3.36).