As ESPN reports, Gordon Hayward’s looming free agency on Saturday is sparking some panic in Boston. Why? It’s the taxes, stupid.
First, some context. ESPN suggests that the Boston Celtics will offer Hayward a $127 million four-year deal. But other teams are lurking. According to SportingNews.com, Hayward’s current team, the Utah Jazz, will offer him a new $180 million five-year deal. The Miami Heat are also frontrunners to sign Hayward. Most estimates suggest the Heat will have salary cap space of around $35 million. Over four years that amounts to a healthy $140 million.
On paper, these deals are comparatively similar. But then you factor in taxation.
At present, Massachusetts charges a flat 5.1 percent income tax rate and Utah 5 percent. Florida has no income tax at all.
But on Wednesday, the Massachusetts legislature passed a constitutional amendment raising tax on earnings over $1 million. If the amendment is approved by voters in a ballot, it means all earnings over $1 million will face a 9% tax.
Correspondingly, it’s not hard to see why Boston may soon become far less favorable to Hayward.
The sums tell the tale. Let’s say, for simplicity’s sake, that the Celtics and the Heat offer Hayward the exact same deal: $127 million/four years. That would mean that Hayward’s annual pre-tax earnings from either team would come out at $31.75 million. Compare that to Utah’s offer of $180 million over five years, which would mean higher pre-tax earnings of $36 million a year.
But hold that thought. Because assuming that Massachusetts does adopt its millionaire tax (a poll last year suggested it has 72 percent support), things could change very rapidly. If the millionaire tax comes in, accounting for the first $1 million of annual earnings being taxed at 5 percent, Hayward would be liable for a 9 percent tax on $123 million. In all, he’d pay about $11 million in state taxes.
Now consider that $11 million tax versus what Hayward would owe over his term in Utah. Five percent of $180 million is $9 million. Re-signing with the Jazz would mean Hayward paying less tax on a higher earnings ratio than signing with the Celtics would under those terms.
And then there’s Florida. In the sunshine state, of course, Hayward would still be earning less post-tax than in Utah, but he would be saving $11 million over playing in Boston.
As I say, the economics of high-end athleticism are not Boston’s favor.
