As a sports nut attending St. Olaf College in rural Minnesota, I jumped on the Timberwolves basketball bandwagon during their peak Kevin Garnett years of 2002 to 2004. But with or without Garnett, the franchise has been hopeless. Between 1989, when the team entered the N.B.A., and this season, the Timberwolves have the worst record in the league.
It might be easy to lay the blame for the teams woes on the owner, Glen Taylor, or their coaching carousel, but I blame the state. After all, Minnesotas aversion to winning is not restricted to basketball. In a state synonymous with hockey, neither the Wild nor the Stars (while in Minnesota) has won the Stanley Cup. Same for the Vikings and the Super Bowl. The Twins did win the World Series, but thats the exception to the losing rule.
Why all the losing? After becoming an economist, I wondered if there might be a more systematic economic explanation. Eventually, after years of research and number crunching, I found the answer. Or at least a culprit: state income taxes.
Minnesota has one of the highest top marginal income tax rates for any state at 9.85 percent. For most normal people i.e., non-sports nuts this is a worthy investment in great public services. Minnesota is routinely listed as a place with an excellent quality of life, including a strong public education system and a well-maintained parks system. Some of the happiest people in the country even some long-suffering Minnesota sports fans call it home.
Its unclear how much professional athletes value these public goods, but the Timberwolves still have to pay extra to offset those taxes. And given the competition under a salary cap, it means Minnesota teams spend almost 10 percent less than teams from Florida or Texas, which have no income tax. This could be enough money to upgrade from an average player to an All-Star.
To test my theory, I gathered data on the outcomes of every professional sports game over the past 40 years as well as data on state and local tax rates each team member faces. I then computed how much taxes predict winning for each league in every year while controlling for other factors such as population, income, franchise age and local amenities (i.e., weather).
Results of the analysis show that higher taxes consistently predict worse performance in every league not just the N.B.A. but also Major League Baseball, the N.H.L., and the N.F.L. over the past 20 years. The findings do not change if I use championships or finals appearances instead of regular season wins, and no single city, team or year drives the results.
Its in the N.B.A. that I find the largest effect. If Minnesota eliminated its income tax, the Timberwolves might win two to five more games each year. This may not sound like much, but the price for victories is quite high. Last summer the Washington Wizards signed Bradley Beal to a five-year, $128 million contract, and if things go well, they should expect him to contribute two to five wins per season. I find a much smaller effect in M.L.B., which has no salary cap, where a similar income tax change for the Twins would result in winning only about one more game each season.
