High U.S. Income Tax Rate Has Boxing Superstar Manny Pacquiao on the Ropes


Posted by Matt Blumenfeld on Thursday, February 14th, 2013, 10:48 AM PERMALINK


With the announcement that top ranked boxer Manny Pacquiao will seek to hold 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. As reported by Yahoo! Sports:

[Pacquiao chief advisor] Michael Koncz told Yahoo! Sports that the 39.6 percent tax rate Pacquiao would face if he were to fight again in the U.S. makes a fall bout in Las Vegas "a no go."

Pacquiao’s concerns lie with the federal income tax. As Nevada is one of the nine states that do not have 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.  According to Yahoo! Sports:

"Manny can go back to Las Vegas and make $25 million, but how much of it will he end up with – $15 million?" [boxing promoter] Arum said.

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.

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