Taxes and Cliff Lee


In the frenzy over whether Cliff Lee will choose the Yankees or the Rangers, a number of sports reporters have generated stories on how Texas has a huge advantage over NY because of the state and city tax rates.

Hopefully the reporters get someone else to do their taxes.

First of all, in Lee's bracket, the tax professionals do a heck of a lot more than pump in a couple W2s on the return and efile the sucker. Tax planning is an art as well as a science. But just to show how silly the whole process is, let's say for the sake of argument that by playing in New York, Lee will subject himself to state and city taxes at the highest rates - 8.6 percent and 3.65.

That's 12.2 percent. Of course, that's the highest rate, not the actual effective rate, but why quibble?

At $23 million a year - I'm arbitrarily choosing the $140/6 year offer - that would work out to $2.8 mil a year in taxes. Decent money, even for a millionaire. (It's also where most of the first wave of stories stop.)

Except that Lee almost certainly wouldn't live in NYC, so he'd only be taxed on the games that he played here (the rest are taxed by the other cities, just as they would be if he were a Ranger). So slice that bill in half = $1.4 million.

Thing is, he also gets some credit on his federal tax return for paying local taxes, the same as you do. Even a simple return starts to get complicated from this point, but even with generous rounding in the government's favor the bill is down to $1 million per year. That's not even half the amount of extra money he'd pick up in endorsements in NYC over Texas. Even if he didn't want to do those endorsements, do you really feel the Yankees would lose Lee over a million dollars a year?

The truth is, Lee's choice ISN'T going to be about money, let alone taxes. He's getting a boatload no matter what. If he chooses Texas over the Yankees, it's not going to be because the state doesn't have income tax - it's because he wants to play there. And vice versa.

Whichever team he doesn't choose will just have to live with that.