Boxer Highlights U.S. Federal Income Tax Knock Out
With the announcement that top ranked boxer Manny Pacquiao will seek to have his upcoming boxing matches away from the bright lights of Las Vegas and off U.S. soil, the Filipino boxer becomes the latest professional athlete to highlight the current non-competitive U.S. income tax rate.
Unlike his American contemporaries, Pacquiao?s concerns lie with the federal income tax. Nevada is one of the nine states that do not have an income tax. Due to the absence of an income tax, Las Vegas has grown to become the home for major bouts because fighters do not have to worry about the state taking a bite out of their winnings or purse. Unfortunately, Nevada?s economic benefit is now overshadowed by the federal income tax rate.
For boxers who stand to earn over $1 million per fight through winnings, pay-per-view revenue shares, fight bonuses, and other forms of taxable income, they will be taxed at the top marginal income tax rate of 39.6 percent. Pacquiao, boxing?s second biggest PPV draw, understandably views boxing in America under this tax rate to be a bad business decision.
Since Pacquiao is not a U.S. citizen or permanent resident, he can keep a larger percentage of his fight earnings by taking fights outside of the U.S. The other options Pacquiao and his management team have considered are Macau and Singapore: both casino and gaming markets comparable to Las Vegas and ideal to host a grand boxing event.
If Pacquiao or any other non-resident of the U.S. were to take a fight in these two markets and earn a $20 million purse, this is what their savings would be:
Location
Top Marginal Income Tax Rate
Difference in Tax Rate
Tax Liability
Difference in Tax Liability
United States 39.6% – $7.9 million –
Macau 12% 27.6% $2.4 million $5.5 million
Singapore 20% 19.6% $4 million $3.9 million
With the millions of dollars in savings factored with the relatively short career of a professional boxer, more non-resident boxers could soon follow Pacquiao?s lead for greater economic freedom and financial security. Since most professional boxers are non-citizens or non-residents, the exodus would see the economic burden worsen for American cities that host boxing bouts of this magnitude.
Fewer boxing matches per year would mean fewer vendors, a decrease in tourism, and less money being spent in host cities. Hosting a major sporting event has proven to create jobs and insert economic life within the city. The federal government needs to follow the examples being set by GOP governors seeking to reduce their respective state?s income tax burden or risk losing investments across every industry.
At the end of the day, people migrate and invest in places where they will receive the most for their services and skills. The higher the income tax, the less return these same people will see. By continuing to have this excessively high income tax, the U.S. continues to discourage businesses and workers looking to make profitable investments.
