Joseph Steelman
LeBron James recently announced that he will be moving to Miami. This is great news for Miami, but terrible news for the rest of the cities courting him.

An economic impact study commissioned by the mayor of New York City concluded that the LeBron effect would likely inject $60 million per year into the local economy. Not surprising, given that ticket sales, advertising revenues, and team retail in Cleveland had increased dramatically since James' rookie year.

Because of the way the free-agent landscape worked out, and overall team salary cap requirements, Miami was not able to offer James a competitive contract, while both New York and Cleveland were. But Miami did possess a wild card that the other suitors couldn't match: tax-relief. No, not in the form of direct incentives, in the form of a healthier tax climate.

Interestingly, Florida does not impose a personal income tax, whereas both Ohio and New York levy personal income taxes of 6 percent and 12.6 percent, respectively, in their highest brackets. On a deal said to be worth around $100 million, that 12.6 percent tax on income wipes out the economic comparative advantage that New York may have had. However, the 6-percent income tax would level the playing field for Miami and Cleveland were it not for Cleveland's pesky earnings tax. The 2 percent of James' income that the city of Cleveland could claim was enough to give Miami the fiscal residual it needed to land its new money-making machine.

What can Missouri learn from all this?

Simply put, our current economic development plans may not be able to compete against states with lower taxes. New York may offer James lots of incentives to coax him to the state, but the simple ability to keep the money you've earned is a strong incentive in itself.

About the Author

Joseph Steelman