Can Rick Perry Take Credit for a Rangers World Series Title?
October 25, 2011 Leave a comment
Campaign season means it’s time for candidates to attempt to take credit for everything positive that’s less than six degrees removed from anything you’ve ever been involved in. So why might Perry claim a hand in the Rangers success? The answer is that Texas has no state income tax, and according to a new study in the Journal of Sports Economics, that can give a team a quantifiable advantage.
This basic specification suggests that each percentage point of an income tax raises free agent salaries by $21,000 to $24,000; other estimates indicate even larger impacts. These findings suggest that the existence of this additional salary demand means that low-tax cities (e.g., Florida, Texas, and Washington) have a ‘‘home field advantage’’ in the baseball free agent market.
How much credit could Perry conceivably claim? Let’s try and figure it out with some extremely shoddy back-of-the-envelope calculations.
The 23 non-Canada, non-DC teams that are subject to state income tax have an average rate of 6.75%. Given the average savings of $21k-$24k per percentage point, the Rangers can save approximately $150,000 on each player compared to these teams. However, not every player on the Rangers 40-man roster was eligible to earn a free-market salary through arbitration or free agency. A quick glance at the roster reveals about 19 players who engaged in some type of salary negotiation with the Rangers. Although the teams saves vastly different amounts from high-salaried and low-salaried players, for the purpose of simplicity let’s stick the with the average figure of $21k-$24k per percentage point that the researchers came up with.
Adding the tax policy savings of those 19 players nets the Rangers a payroll discount of almost $3 million. The Rangers payroll at the beginning of the year was almost $92 million, meaning their tax savings are around 3% of payroll. This is right in line with the researchers’ estimate that “after correcting for multiple tax venues, Florida, Tampa Bay, Texas, Houston, and Seattle may be able to sign free agents at a salary savings of from 2% to 3% relative to other clubs.” Clearly, a team’s success is not directly related to payroll, but given the extremely simple and highly suspect nature of my “model,” let’s assume it is and say that the lack of a Texas income tax is responsible for 3% of the Rangers success.
Research has also shown that $3 million in additional salaries adds somewhere between .3 and .5 wins per season. The Rangers payroll was almost exactly at the league average of $92.9 million, but the team won 14 more games than the average MLB team. It’s hard to know the marginal value of each dollar, but if we apply the “wins-per-$3 million” numbers strictly to those 14 wins, we also get that the $3 million in savings is responsible for approximately 3% of the team’s unexpected success. (Nate Silver, where are you? Help me out.)
Now let’s get back to Rick Perry. The biggest obstacle to Perry’s potential claim on the Rangers’ success is that Texas had no income tax before Perry became governor. While it is unlikely Perry would ever attempt to institute a state income tax, he can claim some tiny amount of credit for resisting the urge to do so. In addition, Perry was the agricultural commissioner of Texas in 1993 when the amendment that outlawed the state income tax was passed. Although it’s unlikely he played a major role in the process, let’s also give him some credit for his presence in state politics at the time. All in all, let’s say there is a 1 in 500 chance that without Perry Texas would currently have a state income tax. Combine the 3% of the Rangers success that arises from state tax policy with Perry’s .2% responsibility for that policy, and we get that Perry can legitimately claim he is responsible for .006% of the Rangers success.
Take it and run with it Rick. Just don’t mention the Astros.
Alm, J., Kaempfer, W., & Sennoga, E. (2011). Baseball Salaries and Income Taxes: The “Home Field Advantage” of Income Taxes on Free Agent Salaries Journal of Sports Economics DOI: 10.1177/1527002511422567