Wednesday, July 16, 2014

Incentives Matter! The Trevor Ariza Edition

I don't follow pro basketball closely, so I didn't know who Trevor Ariza was until I read about him and his excellent economic decision-making in a post from Cato@Liberty.  What did this star NBA player do? He rejected an offer from his former team, the Washington Wizards, only to accept the same amount of money from a competing team, the Houston Rockets.  Why? Because Texas has no state income taxes and DC has a large income tax.  From the blogpost:
Yes, a $32 million salary – or indeed a $32,000 salary – goes further in Texas than in the District of Columbia. What economists call the “tax wedge” is the gap between what an employer pays for an employee’s services and what the employee receives after taxes. It causes some jobs to disappear entirely, as employees and employers may not be able to agree on a wage once taxes are taken out of the paycheck. It causes some employees to flee to lower-tax countries, states, or cities. The Beatles, the Rolling Stones, Bono, and Gerard Depardieu are some of the better-known “tax exiles.” Now Trevor Ariza has joined their ranks.
Great on ya, Trevor! Hopefully this will help set an example for sports players all over America!