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  1. *head explodes*

    Comment by Uncle Randy — December 12, 2011 @ 9:07 am

  2. Just a terrific article. Remember when ESPN kept reporting that tax issues played a roll in The Decision, but no one quantified it? I wish they had run an article like this.

    Great stuff.

    Comment by jcxy — December 12, 2011 @ 9:10 am

  3. So, Pujols is a walking economic stimulus package?

    Comment by CJ — December 12, 2011 @ 9:20 am

  4. As a nationals fan, I compared DC to Florida when we lost Buehrle to Miami, now that is a big difference. That said, the source based state income tax does help to ease the tax hit AND the deductubility of those taxes from federal income shrinks it a little more. Though deductibility does not affect relative tax burden, it does make it smaller by 35%.

    Comment by Steven — December 12, 2011 @ 9:27 am

  5. Has anyone created a list of the effective tax rates for each MLB team?

    During free agent season, that might be interesting to know.

    Comment by Dave S — December 12, 2011 @ 9:32 am

  6. Yeah — me, haha. Once I modify my spreadsheet to be more user-friendly I don’t see why I couldn’t make it available.

    Comment by Eric Seidman — December 12, 2011 @ 9:33 am

  7. I am disappointed in the relative lack of Death in this article.

    Great coverage of the other two, though.

    Comment by Ari Collins — December 12, 2011 @ 9:53 am

  8. That’d be great. Does your spreadsheet include Toronto. Do American residents who work part of the year in Canada pay Canadian taxes?

    Comment by Yirmiyahu — December 12, 2011 @ 9:55 am

  9. I would think real estate taxes would be substantial to someone making millions of dollars per year as well. I realize most players don’t live in the state they play in–but I would be most in western states do keep a large home in the state. Obviously, sales tax isn’t going to add up to much, unless it is on services.

    Comment by Barkey Walker — December 12, 2011 @ 9:57 am

  10. I’m disappointed by the lack of death coverage in this article.

    Comment by fang2415 — December 12, 2011 @ 9:57 am

  11. D’oh, too late.

    Comment by fang2415 — December 12, 2011 @ 9:58 am

  12. Honestly, I don’t think the take-home dollar figure is what’s important to most athletes. If you look at the way deals are usually constructed (backloaded contracts, interest-free deferred payments), I think the important thing is the dollar amount that gets reported in the papers.

    Comment by Yirmiyahu — December 12, 2011 @ 10:01 am

  13. For a guy making as much as Pujols, I have to believe the more important factor was the number attached to his contract, not his actual take-home compensation. I believe pride is the number one factor when comparing taking home 16.5 million or 16 million.

    And though he didn’t exceed Arod’s last deal, he at least exceeded his first deal and also exceeded Howard’s AAV. I believe that is what Pujols cared about.

    Great article, though. Taxes are something almost everyone misunderstands.

    Comment by TK — December 12, 2011 @ 10:01 am

  14. I think that’s definitely true.

    Comment by Eric Seidman — December 12, 2011 @ 10:02 am

  15. You shouldn’t be comparing the $500,000 to the $25,000,000 salary.

    You should be comparing the $22m/yr STL offer to an effective $24.5m/yr LAA offer.

    Comment by hotspur — December 12, 2011 @ 10:04 am

  16. I agree here. When athletes say, “It’s not about the money,” and claim that its rather about “respect,” I think this is exactly what they mean.

    Comment by Yirmiyahu — December 12, 2011 @ 10:06 am

  17. The agents know how to plan for taxes. This is still essentially a first order estimate without considering the tax shelter laws of all the component states. I’m sure these guys use their foundations, family trusts, and life insurance/annuities to shrug off a lot of their tax burden.

    Comment by hotspur — December 12, 2011 @ 10:07 am

  18. It gets very interesting with CJ Wilson, who took LESS money from a team with a much higher effective tax rate. The Marlins effective rate this year is substantially lower than the Angels, and they offered him more years and more dollars.

    Comment by Eric Seidman — December 12, 2011 @ 10:07 am

  19. “I have a mansion, forget the price.
    Ain’t never been there, they tell me it’s nice.
    I live in hotels, tear out the walls.
    I have accountants pay for it all.”

    Comment by Yirmiyahu — December 12, 2011 @ 10:11 am

  20. +1

    Comment by jcxy — December 12, 2011 @ 10:14 am

  21. There were a lot of things going on with the Wilson deal. He wanted to play in California, wanted to play with Pujols, wanted a no-trade clause, probably figured the Marlins would trade him in another fire sale sometime in the future, etc.

    I also think there’s a good chance that what happened is simply that Buehrle said “yes” to the Marlins before Wilson was ready to make a decision. So they signed Buehrle and pulled the offer to Wilson.

    Comment by Yirmiyahu — December 12, 2011 @ 10:22 am

  22. I had always believed deferred payments usually had interest pegged to a reference rate.

    Comment by JB — December 12, 2011 @ 10:29 am

  23. Yeah, they’re pretty much exactly like we are and every other person that works for a living.

    I mean except for all of the employees that are happy with being respected by their peers and supervisors while being paid far less than their performance indicates.

    It’s an easy thing to make fun of, but really being paid what you’re worth or being paid the fair price for what you’ve accomplished is a way of someone showing their respect.

    Whether people say it or not, almost everyone values money as one of the most important things, especially businesses. So, an employer would show what it really respects by how it distributes it’s “favorite thing” (money). Some companies show it with flexible schedules, etc. But most people just prefer if they show it in “financial compensation”.

    Would anyone else feel respected making 40K for 80K worth of work, when that work netted your boss a boatload of money. If another company offered you more net money for the same job , would you take it?

    People do the same thing athletes do every day. They leave for better paying jobs. They change jobs because their boss gave them an evaluation they feel they didn’t deserve. They leave because they don’t feel respected because they don’t have a nicer office, or as big of a bonus, or the promotion they wanted. We never say it’s because we’re overly sensitive or that we have an incorrect perception of our value, it’s always because they didn’t respect us or treat us right … then we pick the worst employee at our job and compare ourselves to them to illustrate how valuable we are.

    Comment by CircleChange11 — December 12, 2011 @ 10:46 am

  24. Glad someone noted the Fed Tax deduction…

    Comment by James — December 12, 2011 @ 11:00 am

  25. MLB players’ tax rates should be equal to (50 – dingers) %. Steroids would be write-offable, of course.

    Comment by buddy — December 12, 2011 @ 11:04 am

  26. They may not understand why the contracts result in different after-tax dollars, but it is definitely a consideration. Just look at the offer the Astros gave Beltran when he was a free agent. There was a clause that if he was traded his contract would be grossed up so he would have the same after-tax dollars as if he stayed with the Astros.

    Comment by YankeesFan — December 12, 2011 @ 11:24 am

  27. I actually broke down the tax effects of Lebron’s decision in my position paper to get my masters. Long story short, until you factor in endorsements he sacrificed more money to sign in Miami than he could have gotten in a max deal. Mike Bibby on the other hand didn’t have the same level of endorsements and could never make up the money he sacrificed in tax savings.

    Comment by YankeesFan — December 12, 2011 @ 11:30 am

  28. It’s also worth noting the higher cost of living in Orange County than in St Louis.

    Comment by hey — December 12, 2011 @ 12:55 pm

  29. And perhaps 39.6% if Congress ever decides to do the right thing.

    But yeah, that Pujols is deducting a higher amount of state taxed money from his federal income, it reduces the difference.

    Comment by AA — December 12, 2011 @ 12:57 pm

  30. The problem with Toronto is that the US is the only developed country that taxes its citizens on income earned outside the country.

    Comment by AA — December 12, 2011 @ 12:59 pm

  31. And given that California has the lowest property taxes in the country, putting his money in a house makes sense.

    Then again, it also makes sense to do what Jeter did and try to have your endorsement income taxed in Florida.

    Comment by AA — December 12, 2011 @ 1:00 pm

  32. Wilson’s no trade clause could lead to greater compensation if he agrees to a trade later.

    Also, if he is successful, the endorsement and other ancillary income possibilities are much better in California

    Comment by AA — December 12, 2011 @ 1:02 pm

  33. Or not. Yes, you can get more land per dollar in St. Louise, but it costs less because it is in a crappier location, not just because.

    With that additional money for the LA property, you get access to some of the best recreation the world has to offer. What city has better places to blow your millions, surrounded by other people also enjoying their millions? Do you seriously think a rich and famous person can party in the same style in St. Louise as in LA? Yes, in LA you will have to share the spotlight, but from what starts say, that appears to be a huge plus.

    Anyways, in general, cost of living is a little stupid because it includes the value of living in that city.

    Comment by Barkey Walker — December 12, 2011 @ 1:04 pm

  34. 1) We don’t know if Albert will live in Orange County.

    2) Prices for the super wealthy don’t really change that much from place to place. A mansion is a mansion (as opposed to a McMansion) and they don’t have a huge difference in price.

    3) Criminally low property taxes will offset a lot of that.

    4) Food costs are substantially lower – and Albert is a big dude. :-P

    Comment by AA — December 12, 2011 @ 1:05 pm

  35. What would his tax rate have been if he accepted Florida;’s offer?

    Comment by JayT — December 12, 2011 @ 1:09 pm

  36. Just think of the good Jose Bautista could be doing for Canada via income tax if AA had waited until free agency to sign him…

    Comment by JaysMac — December 12, 2011 @ 1:45 pm

  37. land values absolutely change. Look at a $25 million house in Greenwich Village, probably smaller than a $300,000 house in St. Louis. Similarly, the mansion on my (center city) street probably costs 5 times as much as my house–it is on 5 lots.

    Comment by Barkey Walker — December 12, 2011 @ 1:50 pm

  38. His point wasn’t that houses cost the same everywhere, it was that Pujols isn’t in a situation where he is going to be choosing between buying a mansion or a studio condo because of the difference in cost of living. When you have as much money as Pujols does, cost of living is almost meaningless, because he can afford the basic necessities anywhere in the world, and when it comes to luxury items, the price difference between cities isn’t all that great, and if it is, he can just buy whatever it is he wants in St. Louis and then have it shipped to the OC.

    Also, I seriously doubt he lives in St. Louis. He’s probably in a rich suburb like Ladue, which has some of the highest property costs in the country.

    Comment by JayT — December 12, 2011 @ 2:25 pm

  39. abridged version to the community forum as a post?

    Comment by cable fixer — December 12, 2011 @ 2:36 pm

  40. Yeah, there certainly was room for discussion of the estate, er, “death” tax that little Albert, Jr. will have to pay.

    Comment by chuckb — December 12, 2011 @ 3:28 pm

  41. $21 M per year.

    $210 M for 10 years was the Cards’ last offer.

    Comment by chuckb — December 12, 2011 @ 3:29 pm

  42. Not sure about ahtletes, but generally yes he’s supposed to pay Canadaian income tax on the money he earns there — and then deduct that from his US federal taxes. (The top tax rates are higher in Canada, but since he’ll only have a handful of “service days” in Toronto each year, it probably doesn’t matter — and would just make for a bigger 1040 deduction anyway), That’s per the Canada-US tax treaty, but that thing is full of provisions and exemptions peculiar to various occupations and businesses, so as I said the rules for a pro athelete may be totally different, I don’t know.

    Comment by joser — December 12, 2011 @ 3:48 pm

  43. Piggy backing on JayT’s comment, I’d have loved some analysis from the reported Florida offer. As they don’t have any income tax I imagine that is where the significant tax difference would have come in. I think he left quite a bit of money by picking LAA over FLA.

    Comment by peachesnnuts — December 12, 2011 @ 4:38 pm

  44. Not sure, what you are talking about AA. Canada taxes global income as well. I think most countries tax global income.

    Comment by fred — December 12, 2011 @ 5:12 pm

  45. http://www.celebritydetective.com/Celebrity_Homes_Albert-Pujols-house-profile.html

    Comment by Yirmiyahu — December 12, 2011 @ 5:24 pm

  46. “when it comes to luxury items, the price difference between cities isn’t all that great,” Well, luxury items that are not land.

    Comment by Barkey Walker — December 13, 2011 @ 11:03 am

  47. Even less than $21m per year, because $30m was deferred at 0%

    Comment by AA — December 13, 2011 @ 3:10 pm

  48. Using New York is an awful comparison – Especially since you are using Manhattan as the example. Here, use Long Island (and not the Hamptons) instead.

    Comment by AA — December 13, 2011 @ 3:14 pm

  49. I think you’ve got the Jock tax wrong. Wherever Pujols plays games, California still taxes him at 10.3%; it lets him deduct taxes actually paid to other states where he performed services (not sure about municipalities). So no matter what, he’s paying at least 10.3%. That’s because California considers him a domiciliary, not a visitor.

    Plus, state tax is deductible against the Fed taxes, so his effective rate is 6.695% (10.3% * (1-35%)).

    And when his agent negotitates a tax gross-up, he almost certainly got it fully grossed.

    Comment by Steve Balboni — December 14, 2011 @ 7:01 pm

  50. But wouldn’t pretty much all MLB free agents be hit by the AMT and thus not be able to deduct state taxes?

    Comment by Toffer Peak — December 15, 2011 @ 2:03 am

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