Friday, December 10, 2010
Taxing decision for Lee
One of the myriad of reasons that Texas may appeal more to Cliff Lee than New York is the tax scenario. Let's take a closer look at that.
Cliff Lee's State/City Taxes
If He Lives in NYC
Leaves him with
>> No such taxes in Texas
The Yankees' initial offer to Cliff Lee was approximately six years and $140 million. While a seventh year has since been added, let's use the original report to illustrate the following point, since we know the approximate dollars involved.
If Lee lived in New York City, he would pay 12.618 percent of his salary to state (8.97 percent) and city (3.648 percent) income taxes (based upon the 2010 tax rates). Presuming that held steady, that would amount to $17.67 million on his total contract.
Thus, a six-year/$123 million contract with the Rangers would be more valuable to Cliff Lee than a six-year/$140 million contract with the Yankees, since there are no state or city taxes in Texas.
The chart on the right hand side of this column illustrates what Lee's tax payment would be, depending on the money he got from the Yankees. That should give a rough equivalent of what the Rangers could offer to match.
A couple of caveats here. First, we're presuming Lee would live in New York City (there are variables involved with commuter taxes if he live elsewhere). Secondly, this only factors in city and state taxes. Regardless of where Lee signs, he'll have a hefty federal tax bill to pay.