February 9, 2016 - 6:41 pm
Super Bowl 50 was frustrating in more ways than one for Cam Newton. Not only did his favored Carolina Panthers lose to the Denver Broncos, and not only was he widely criticized for walking out during the post-game press conference, but due to some outrageous tax policies, the quarterback will also lose his entire Super Bowl bonus check (and then some) to the state of California.
As K. Sean Packard outlined for Forbes last week, states tax professional athletes according to their income for the calendar year. In order to calculate this so-called “jock tax,” they apply what is called a duty day calculation, which takes the ratio of duty days (or days spent working) within the state over the player’s total duty days for the year. They then multiply that ratio by the player’s salary to determine a state’s allocable income.
Technically, Mr. Newton worked for seven days in California during Super Bowl week. If the Panthers had won the game, he would have owed the state $88,000 — or a whopping 86.3 percent of his Super Bowl income of $102,000. However, since the Panthers lost, Newton has to pay $87,800 on a reduced income of $51,000. If you’re doing the math at home, that works out to an eye-popping 172.2 percent. On top of that, Mr. Packard noted Mr. Newton will also have to pay the IRS 40.5 percent on his earnings for the game, as well as income tax to his home state of North Carolina. And since the Panthers are scheduled to play in California twice in the 2016 regular season, Mr. Newton will be on the hook to the Golden State for about $50,000 more in taxes this year.
Mr. Newton’s tax bill is similar to what his Super Bowl 50 opponent Peyton Manning faced two years ago. Not only were Mr. Manning’s Broncos wiped out by the Seattle Seahawks in Super Bowl 48, but so was Mr. Manning’s bonus for the game, as the quarterback had to pay New Jersey nearly $47,000 in taxes — on top of taxes to the IRS — on his $46,000 loser’s paycheck.
Now, sure, Mr. Manning and Mr. Newton are extremely wealthy athletes who can afford such outrageous tax bills — Mr. Newton signed a five-year, $103.8 million contract extension last summer — but that doesn’t change the fact that these tax rules are excessive. While rich athletes can afford to pay, the rules surely apply to plenty of other people of much lesser means. Furthermore, it’s punitive for people to be taxed on that income by two different states — along with the federal government, of course. With no state income tax, Nevada, thankfully, spares its residents from this dumb double-dipping, but much like professional athletes, states compete against each other — for tax climate. Bill Foley, in trying to bring an expansion NHL team to Las Vegas, has noted that the state’s tax climate will make it easy to attract big-name players. Mr. Newton’s losses show why.
This is nothing more than a government money grab. If California — or government at any level, for that matter — is that strapped for cash, then it should do what households across America have to do every single day: spend less, and better prioritize that spending. Unfortunately, with President Barack Obama’s final budget calling for a 5 percent increase in spending, that belt-tightening is not likely to happen any time soon.