Are High Taxes to Blame for Minnesota's Championship Drought?
The Twin Cities have been waiting since 1991 for a winner. A University of Illinois-Chicago economist says lowering the income tax rate might help.
Of the 13 metropolitan areas in the United States currently hosting teams in each of the four major professional sports leagues, none have been waiting longer to celebrate a championship than the Twin Cities.
One possible reason why? Minnesota's high personal income tax rate.
"You get a lot of complaining about professional sports in Minnesota, because this problem is especially acute there," Dr. Erik Hembre, told The Washington Post this week. "People complain about, 'Oh, we can't get good free agents. It really hurts us.'"
Hembre, an economist at the University of Illinois at Chicago, claims to have found a direct relationship between state tax rates and the success of professional teams based in those states. His research shows that, since the mid-1990s, a ten percentage point increase in income taxes correlates with a 2-3 percentage point decline in team's winning percentage. The effect is greatest in the National Basketball Association (where signing one major free agent arguably has a greater impact on a team's success than in any other major sport) and smallest in Major League Baseball, according to Hembre.
Minnesota's high tax rate, Hembre says, costs the Minnesota Timberwolves a total of 4.5 victories per season when compared to pro basketball teams in low-tax states like Florida or Texas.
Minnesota's state income tax is one of the highest in the country. The top marginal rate of 9.85 percent applies to anyone making more than $157,000 annually (or married couples making more than $262,000). That high rate might force teams in Minnesota to pay higher rate for the same talent, or might give highly-sought-after free agents a reason to play somewhere else.
The Twin Cities last celebrated a major sports championship in 1991, when the Twins claimed the World Series with a dramatic extra inning victory in the seventh and final game. Since then, not a single Minnesota-based team has reached the final round of their respective league playoffs.
Bad luck may be part of the answer. The Vikings of the National Football League reached the final round before the Super Bowl in 1998, 2000, and again in 2009, only to lose all three times (twice in overtime). The Minnesota Twins made regular playoff appearances during the 2000s, but only advanced past the first round on one occasion, which might say more about the comparatively random nature of Major League Baseball's playoff system than anything else. The Twin Cities' professional basketball and hockey teams have been occasionally competitive but never considered strong championship contenders since joining the National Basketball Association and the National Hockey League in 1989 and 2000, respectively. (It should be noted that the Minnesota Lynx are something of a dynasty in women's professional basketball, having won WNBA championships in 2011, 2013, and 2015.)
Other metropolitan areas with all four major professional sports have higher taxes than Minnesota does—the Los Angeles area and the San Francisco Bay Area in California, for example—but professional athletes might be willing to pay a premium, in the form of higher taxes, to live in places like that. As great as the Twin Cities can be (full disclosure: I lived there for three years and loved it), they have a hard time competing with South Beach and Hollywood for celebrity culture.
"Professional athletes are paid very well and therefore they have large incentives to consider the tax implications of the teams they choose to play for," Hembre told the Post.
Well-paid professional athletes are a particularly mobile sector of the workforce, and can more easily make decisions about where to live and work than most of us who can't slam dunk a basketball or throw a baseball at 90 MPH. Still, technology is making it possible for ever-larger segments of the workforce to have the kind of flexibility that once was possible only for those people with such specialized, and highly valued, skills. That's something that states should keep in mind when trying to attract talented workers, whether on the football field or in the office parks.
Lower taxes are good for lots of reasons. They allow workers to keep a larger share of their paychecks, let entrepreneurs and investors do more to stimulate the economy, and encourage existing businesses expand or hire more workers. They generally lead to overall economic growth.
And, maybe, just maybe, that would help the Minnesota Vikings finally win a Super Bowl.
