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Taking One for the Team

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Taking One for the Team

Phil Mickelson points the way for rich folks: get out of California, quietly. January 25, 2013
California
Economy, finance, and budgets

Golfer Phil Mickelson made a public relations mistake, and thank goodness he did. While golf is an individual sport, in this case, he took one for the team. At a PGA news conference last week, he spoke out against the new, higher taxes he now has to pay and announced in passing that he might have to make some “drastic changes” to deal with the major tax increases that took effect this month. The liberal press went bonkers, and much of the envious public piled on with insults and ridicule—incensed that anyone making $60 million would dare complain about paying his “fair share.”

A bewildered Mickelson quickly backtracked, apologizing for speaking out on such a political issue. And he apologized again a few days later—after intense meetings with his publicist—delivering his mea culpa with just the right combination of contriteness and joviality. All his backtracking in turn angered other fans, who had lauded him for speaking out.

A California resident, Mickelson’s total federal and state tax on his earnings is now somewhere north of 50 percent—experts and pundits debate just how far north. He claimed he was in the “62, 63 percent tax bracket.” Most experts figure he’s in “only” the 52 percent to 57 percent tax bracket. But then, it isn’t important that Mickelson is not on top of his tax game; what matters is that California’s tax rate is now so high that it’s prodding him to take corrective action, as it may prod others. With the passage of Proposition 30, the 13.3 percent income-tax rate on Californians earning more than $1 million annually makes up a hefty portion of the golfer’s high marginal tax rate.

Mickelson apologized for speaking out, not for his views or his stated plans concerning his tax problem. Unless he is somehow cowed by the blowback, odds are that he will take the most obvious step and quietly move his family from California to Florida, where a majority of PGA professional golfers live. Given the press scrutiny, he might wait a year or so. But he’ll go. Though his public backpedaling was disappointing, it’s also understandable. Most of the 42-year-old Mickelson’s earned revenue comes not from winning prize money at golf tournaments, but from his likeability as a celebrity and his subsequent selling power as a product endorser. By speaking out (and by being portrayed as greedy for doing so), he put at risk tens of millions in future income. Facing such a dramatic loss in earning power, who wouldn’t “apologize”?

In response to the controversy, Tiger Woods admitted that he moved to Florida in 1996 for tax reasons, just as Mickelson is contemplating doing. The press yawned. But here’s the kicker: Woods left nearly 17 years ago because of a confiscatory 9.3 percent state income tax (which kicked in at under $100,000 for married couples). Today, the income tax on earnings over $1 million is now 43 percent higher than when Woods left.

Prop. 30’s unintended consequences will blindside all California sports fans, not just golfing buffs. Imagine the Dodgers or the Lakers trying to entice high-priced talent to come to California, where they will have the privilege of paying 13.3 percent tax on all of their income. Fans of the Sacramento Kings have just seen their team sold to new owners in Seattle, where there is no state income tax. And don’t be surprised when professional sports teams in Texas and Florida buy California’s best athletes in free-agency bidding contests. Voters for Prop. 30 who thought “soak the rich” sounded like a great idea may soon regret their choice.

It’s a fair bet that, given the chance, Mickelson would like to take a Mulligan, saying not a word about his tax worries. Fortunately, he can’t. He has sounded a wakeup call about a problem that, until now, has received little consideration in the mainstream California press: rich Californians are seriously considering leaving the state. For rich folks, Mickelson inadvertently provided the same lesson any golf pro gives a duffer: “Keep your head down.” Mickelson didn’t, and he nearly got his head shot off. It appears that the golfer’s apologies have largely smoothed the waters, but the lesson is clear to any other wealthy Californian: Just leave. Quietly.

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