Companies are merging with foreign competitors to get tax breaks. Here's what the notorious Mavs owner thinks of that.
Dallas Mavericks owner and investor Mark Cuban has taken to Twitter this morning with some big thoughts about the U.S. companies changing to foreign addresses to get tax breaks.
Such corporate relocations, known as inversions, have become a hot-button issue in recent days after several major corporations pulled the tax maneuver and President Obama began calling for Congress to block this virtual corporate exodus.
Cuban starts with what sounds like your basic economic patriotism argument:
And then things get more interesting.
By PE, Cuban means price-earnings ratio, the standard way investors value a stock. He means that if companies take the tax break, investors ultimately benefit because it raises earnings. (We recently discussed who really benefits here. Short answer: That’s true mostly for wealthy investors like Cuban.) And he says he’s wiling to live with lower earnings. But what does “risk doesn’t leave the system” mean?
Of course, he adds, if you sell to punish a company for cutting its taxes, make sure it doesn’t mean you pay a bunch of taxes.
Activism has its limits, amirite?
Short-term trades are usually taxed like regular income. But not if you are a hedge fund with a helpful banker.
If you invest or do any stock trading outside of a 401(k) or IRA account, you know that how long you hold your stocks can make a big difference at tax time.
If you buy and then hold an investment for at least a year, your profits will be taxed at the long-term capital gains rate — 15% for people in most tax brackets and 20% for those in the very top one. Fast in-and-out trades, on the other hand, face a much bigger tax bite because they are taxed as ordinary income. What’s more, you can be hit with those higher rates even if you aren’t a day trader: For example, if you own an aggressively managed mutual fund that does a lot of trading, you may get capital gains distributions you have to pay tax on.
Now it appears that some high-powered hedge funds found a clever way around those higher rates, basically by turning short-term trading gains—often really short-term, as in minutes—into long-term ones. According to a report issued this week by a the Senate subcommittee on investigations, that move might have netted one fund managed by Renaissance Technologies a tax saving of $6.8 billion over several years. That billion with a B.
By what magic does a trade of a minutes become a long-term, buy-and-hold investment eligible for lower taxes? Well, it appears you just had to find a bank that will wrap your trading into something called a ” basket option.”
Here’s how it worked: Instead of buying and selling the stocks directly, hedge funds would go to a bank—the Senate report singled out Barclays and Deutsche Bank—and buy an options contract linked to the value of a basket of securities. Think of the basket of securities as being like a stock fund; and just like a stock fund you might have in your 401(k), the composition of that basket is constantly changing. In the Renaissance case, the basket changed based on computer algorithms looking for tiny inefficiencies in asset prices, which meant constant buying and selling.
At some future date, the hedge fund could exercise the option and get back the amount it paid for the option plus or minus any returns on investments in the basket. And here’s where the tax break happened: If the hedge fund waited at least year to exercise the option, all those quick in-an-out trades inside the basket got wrapped up in one big long-term trade.
The really clever (or, some might say, devious) part is that the basket of securities was all along actually still managed by the hedge fund. Technically, the banks hired Renaissance managers to run the basket backing the options that they sold to Renaissance. Did you catch that?
In Senate testimony this week, execs from the banks and Renaissance offered their side. They say that while it’s true there were tax advantages to this set-up, it wasn’t only a tax shelter. For example, in addition to changing the tax treatment, using an options contract also gave Renaissance a lot of leverage, since they only put in part of the money to buy the basket. That amplified their wins as well as losses. (The Senate’s not too happy about that part, either, though. Since 2008, big investors using borrowed money looks more like a bug than a feature.) It also limited Renaissance’s exposure to catastrophic losses, since they couldn’t lose more than they paid for the option, giving the banks some skin in the game on the portfolios. In tax law, something that works like a tax shelter can still be okay if it has another economic purpose.
The Internal Revenue Service, though, indicated in 2010 that moves like this don’t pass the smell test.
Howard Gleckman of the Tax Policy Center explains here why it is that the IRS might not yet have clamped down on this particular maneuver. Short answer: It’s tough for the IRS to go after big hedge funds and their investors. They are outgunned. Gleckman wonders if we have a “two-tiered” tax system, one for the rich and another for the rest of us.
At the subcommittee hearing, there were really two arguments in play. One was whether the tax law technically allows quick trades to be turned into long-term investments in this way.
The other was whether it should. That doesn’t seem like a hard question.
Last-minute IRA savers and those who keep their money in cash are paying a procrastination penalty.
Individual Retirement Account contributions are getting larger—an encouraging sign of a recovering economy and improved habits among retirement savers.
But there is an “I” in IRA for a reason: investors are in charge of managing their accounts. And recent research by Vanguard finds that many of us are leaving returns on the table due to an all-too-human fault: procrastination in the timing of our contributions.
IRA savers can make contributions anytime from Jan. 1 of a tax year up until the tax-filing deadline the following April. But Vanguard’s analysis found that more than double the amount of contributions is made at the deadline than at the first opportunity—and that last-minute contributions dwarf the amounts contributed throughout the year. Fidelity Investments reports similar data—for the 2013 tax year, 70% of total IRA contributions came in during tax season.
Some IRA investors no doubt wait until the tax deadline in order to determine the most tax-efficient level of contribution; others may have cash-flow reasons, says Colleen Jaconetti, a senior investment analyst in the Vanguard Investment Strategy Group. “Some people don’t have the cash available during the year to make contributions, or they wait until they get their year-end bonus to fund their accounts.”
Nonetheless, procrastination has its costs. Vanguard calculates that investors who wait until the last minute lose out on a full year’s worth of tax-advantaged compounded growth—and that gets expensive over a lifetime of saving. Assuming an investor contributes the maximum $5,500 annually for 30 years ($6,500 for those over age 50), and earns 4% after inflation, procrastinators will wind up with account balances $15,500 lower than someone who contributes as early as possible in a tax year.
But for many last-minute savers, even more money is left on the table. Among savers who made last-minute contributions for the 2013 tax year just ahead of the tax-filing deadline, 21% of the contributions went into money market funds, likely because they were not prepared to make investing decisions. When Vanguard looked at those hasty money market contributions for the 2012 tax year, two-thirds of those funds were still sitting in money market funds four months later.
“They’re doing a great thing by contributing, and some people do go back to get those dollars invested,” Jaconetti says. “But with money market funds yielding little to nothing, these temporary decisions are turning into ill-advised longer-term investment choices.”
The Vanguard research comes against a backdrop of general improvement in IRA contributions. Fidelity reported on Wednesday that average contributions for tax year 2013 reached $4,150, a 5.7% increase from tax year 2012 and an all-time high. The average balance at Fidelity was up nearly 10% year-over-year to $89,100, a gain that was fueled mainly by strong market returns.
Fidelity says older IRA savers racked up the largest percentage increases in savings last year: investors aged 50 to 59 increased their contributions by 9.8%, for example—numbers that likely reflect savers trying to catch up on nest egg contributions as retirement approaches. But young savers showed strong increases in savings rates, too: 7.7% for savers aged 30-39, and 7.3% for those aged 40-49.
Users of Roth IRAs made larger contributions than owners of traditional IRAs, Fidelity found. Average Roth contributions were higher than for traditional IRAs across most age groups, with the exception of those made by investors older than 60.
But IRA investors of all stripes apparently could stand a bit of tuning up on their contribution habits. Jaconetti suggests that some of the automation that increasingly drives 401(k) plans also can help IRA investors. She suggests that IRA savers set up regular automatic monthly contributions, and establish a default investment that gets at least some level of equity exposure from the start, such as a balanced fund or target date fund.
“It’s understandable that people are deadline-oriented,” Jaconetti says. “But with these behaviors, they could be leaving returns on the table.”
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A top economic adviser wants to cut the tax break for 401(k) savings for high earners and launch a new government plan with a generous match and low fees.
Two hot-button economic issues appear to be colliding: the failed 401(k) plan and growing income inequality. Both have been garnering headlines, and now a noted expert is tying them together through proposed reform.
Gene B. Sperling, a former White House economic adviser in both the Clinton and Obama administrations, wants to cut the tax advantage of 401(k) contributions to top earners. He also wants to create a government-funded universal 401(k) plan that would incorporate all the best parts of these plans—low fees, safety, a generous match, and automatic enrollment.
Presumably, a government-backed 401(k) plan also would offer an option like deferred annuities, which the industry has been resisting, and an easy way to convert some or all of your 401(k) balance to guaranteed lifetime income upon retirement. Both those provisions have had strong backing from the White House.
In a New York Times op-ed, Sperling blamed an “upside-down tax incentive system” for contributing to income inequality in America, adding “it makes higher-income Americans triple winners and people earning less money triple losers” as they save for retirement.
Currently top earners pay a federal tax rate of 39.6%, which makes their tax deduction for 401(k) contributions more valuable than the deduction for contributions of those in lower tax brackets. Top earners also have more tax-advantaged savings opportunities, and they benefit more from employer matches. The upshot, Sperling asserts, is that the top 5% of earners get more tax relief for saving than the bottom 80%. He proposes a flat 28% tax credit for saving, regardless of income.
His universal 401(k) plan also would skew toward lower income households with a dollar-for-dollar match up to $4,000 a year below certain income thresholds. Higher income households would be capped at 60 cents on the dollar—still about double the average match today.
Sperling isn’t the first to champion a universal 401(k) or fret publicly about income inequality. President Clinton floated universal accounts in 1999. Versions of this government-funded plan exist in parts of Europe, and Teresa Ghilarducci, a professor of economics at the New School and author of When I’m Sixty-Four, has been arguing for years for private sector workers to be able to enroll in cost-efficient and professionally managed state-operated retirement programs.
So far the idea hasn’t gotten much traction. The debate in Washington has centered on Social Security and tax reform. Maybe this op-ed from a beltway insider is a sign that 401(k) reform—and income inequality—will heat up as an issue in the coming election cycle.
If so, paying for it all will surely be part of the debate. But not to worry, writes Sperling. Among other possibilities, we could cut the federal estate tax exemption. Currently a married couple can leave $10.7 million to heirs tax-free. Cutting the exemption to $7 million would free up billions to bolster the retirement accounts of lower earners and shore up some of what’s wrong with 401(k) plans today—and take a further whack at income inequality in the process.
It's never a great idea, but in an emergency tapping funds earmarked for education beats sabotaging your retirement plans.
Lauren Greutman felt sick.
She and her husband Mark were about $40,000 in debt, and were having trouble paying their monthly bills. As recent homebuyers, the Syracuse, N.Y. couple were already underwater on their mortgage and getting by on one income as Lauren focused on being a stay-at-home mom.
“We were in a really bad financial position, and just didn’t have the money to make ends meet,” remembers Greutman, now 33 and a mom of four.
There was one pot of money just sitting there: their son’s college savings, about $6,500 at the time. That is when they had to make a tough decision.
“We had to pull money out of the account,” she says. “We thought long and hard about it and felt almost dishonest. But it was either leave it in there, or pay the mortgage and be able to eat.”
It is a quandary faced by parents in dire financial straits: Should you treat your kids’ college savings—often housed in so-called 529 plans—as a sacred lockbox, or as a ready source of funds that may be tapped when necessary.
Precise figures are not available, since those making 529-plan withdrawals do not have to tell administrators whether or not the funds are being used for qualified higher education expenses, according to the College Savings Plans Network. That is a matter between the account owner and the Internal Revenue Service.
TIAA-CREF, which administrates many 529 plans for states, estimates that between 10% to 20% of plan withdrawals are non-qualified and not being used for their intended purpose of covering educational expenses.
It is never a first option to draw college money down early, of course. Private four-year colleges cost an average of $30,094 in tuition and fees for 2013/14, according to the College Board. Since that number will presumably rise much more by the time your toddler graduates from high school, parents need to be stocking those financial cupboards rather than emptying them out.
Joe Hurley, founder of Savingforcollege.com, has a message for stressed-out parents: Don’t beat yourselves up about it.
“The plans were designed to give account owners flexible access to their funds,” Hurley says. “I imagine parents would feel some guilt. But I don’t think they should. After all, it is their money.”
Why the Alternative Might Be Worse
Keep in mind that there are often significant financial penalties involved. With non-qualified distributions from a 529 plan, in most cases you are looking at a 10% penalty on the earnings. Withdrawn earnings will also be treated as income on your tax return, and if you took a state tax deduction on the original investment, withdrawn contributions often count as income as well.
Not ideal, of course. But if your other option for emergency funds is to raid your own retirement accounts, tapping college savings is a last-ditch avenue to consider. That’s not only because you do not want to blow up your own nest egg, but because it could make relative sense tax-wise. And as the saying goes, you can borrow money for college, but not for retirement.
“If you think about it, a parent who has a choice between tapping the 529 and tapping a retirement account might be better off tapping the 529,” says James Kinney, a planner with Financial Pathway Advisors in Bridgewater, N.J.
If the account is comprised of 30% earnings, then only 30% would be subject to tax and penalty, Kinney explains. And that compares favorably to a premature distribution from a 401(k) or IRA, where 100% of the distribution will be subject to taxes plus a penalty.
Lauren Greutman’s story has a happy ending. She and her husband made a pledge to restock their son’s college savings as soon as they were financially able. It is a pledge they kept: Now eight-years-old, their son has a healthy $12,000 growing in his account.
She even runs a site about budgeting and frugal living at iamthatlady.com. Still, the wrenching decision to tap college savings certainly was not easy—especially since other family members had contributed to that account.
“We tried to take emotion out of it, even though we felt so bad,” Greutman says. “Since we didn’t have money for groceries at that point, we knew our family would understand.”
Newly released IRS data shows where in the U.S. top earners live.
Teton County, Wyoming, tops the list for highest average income in the United States, according to updated Tax Stats data just released by the IRS.
The average income in Teton—known for hiking, skiing, and multimillion dollar Jackson Hole ranches—is nearly $300,000. Compare that with $62,483 for the average American household.
Of course, average income figures don’t give you a good picture of how much a typical resident makes, since super-rich outliers can skew the data (median figures were not released), but this list gives you a good idea of where many of America’s millionaires and billionaires hang out.
Sterling, Texas, places second on the list and carries yet another distinction—the highest average tax liability in the country. Only 600 returns were filed in the county, but the average tax owed was a whopping $97,387.
Note: Dollar figures represent mean adjusted gross income for 2012, the most recent data available.
A big merger turns an American company into a foreign one, and cuts its taxes. Nice trick if you can pull it off.
This morning AbbVie, a big pharmaceutical company based near Chicago, announced it agreed to acquire Shire, another drug maker that is often described as being based in Ireland. It’s actually incorporated on the small island of Jersey, a British Crown dependency. As part of the deal, AbbVie will incorporate in Jersey too, and as a result get what looks to be a pretty sweet tax break. The company’s “effective” tax rate, reports USA Today citing regulatory filings, would fall to 13% in 2016, compared to 22% last year.
And the great part is, the people who run the new company will get to stay in Chicago. Jersey’s nice, but with a population of about 90,000, and the English Channel on all sides, it’s a little inconvenient. For everything besides taxes, that is.
Allan Sloan just wrote an epic cover story for Fortune (which like Money.com is owned by Time Inc.) about the growing trend of companies switching their on-paper country of residence to avoid paying U.S. corporate taxes. Recently, the Obama administration has called on Congress to find a way to crack down on the practice, known as “inversion.”
So here’s a question: How is it that corporations can so easily change their legal address to get a tax break, but the rest of us can’t? (Not that we want to. We’re patriotic, fair-share-paying Americans… but still.)
The simple answer is that corporations are legalistic fictions. You could theoretically move and switch passports, but you’d miss your family and your favorite baseball team, and your employer might wonder why you’re not at your desk. Besides, explains Eric Toder of the Tax Policy Center in Washington, D.C., to do a inversion you need to find an overseas company to merge with, such that 20% of the new combined entity is held abroad. Sort of hard to slice-and-dice yourself that way. A company can go “live” in Jersey and still visit its U.S. customers every day, still employ people here, and still let the CEO keep his season tickets to the opera in New York or Chicago or Boston.
Corporations may be people these days, as the Supreme Court would have it, but they are magically incorporeal ones.
Behind the ghost-like corporate entity that lives abroad, of course, there are lots of actual flesh-and-blood people who live right here in the U.S. of A. So one answer to the question “Why can’t I get this tax break?” is that you can: Just own shares of a company like AbbVie that’s a good candidate for inversion. When corporations pay lower taxes, most of the value of that accrues to the shareholders, says Toder. So if you own some stocks, you get a piece of the action when corporations invert. But it’s probably a very small piece because you have to own a lot of stock to be paying much in the way of corporate taxes.
In other words, inversion isn’t a tax break for “corporations.” It’s a tax break largely enjoyed by wealthy households. Here is how much the Tax Policy Center estimates people pay in corporate taxes, based on income.
You need to get to people earning over $100,000 per year before corporate taxes start taking more than a 1% bite, and the really noticeable burden of the corporate tax falls on people above the $500,000 level. They pay more because they’re the ones who own shares. (How do people earning less that $10,000 end up with some corporate tax? TPC attributes some of the cost of corporate taxes to workers getting lower pay than they would otherwise.)
When companies find tax loopholes, it effectively lowers tax revenues from higher earners, and means the government has to find other ways to raise money instead.
One way to stop companies from “inverting” is to lower U.S. corporate rates, which are high compared to the rest of the world, perhaps paying for it by closing tax preference enjoyed by some but not all companies. (Many companies are good enough at working the tax code that the “effective” taxes that are actually paid by U.S. firms is more in line with international averages.) And that’s part of the long-term solution even the White House says it wants.
But Congress moves slowly, while corporations are light on their disembodied feet. Too bad the rest of us can’t move that fast.
It may feel good to jack up payments by wealthier earners, but Social Security is a safety net, not a tax collector.
How do you categorize the money that comes out of your paycheck to fund Social Security? Do you consider that deduction to be a tax, or a mandatory contribution into a retirement account, or an insurance premium?
For many people, the answer is a tax. That’s what I heard from the majority of readers who responded to my most recent column, “3 Ways to Fix Social Security and Medicare.” It’s an understandable view. After all, the Social Security payroll deduction is commonly referred to as a FICA tax. (FICA is the acronym for Federal Insurance Contributions Act.) And because it’s called a tax, these readers think that Social Security reforms should focus on making wealthier wage earners pay more into the system. Making all wage income subject to payroll taxes would solve between 75% and 80% of the system’s funding shortfall.
I don’t agree with this approach, as I’ll explain. Still, these readers have plenty of company, including some leading critics of Social Security, who argue that payroll taxes are less progressive than the federal income tax. Everyone who works in a job that is covered under Social Security rules pays the same rate: 7.65% of their earned income up to an annual ceiling of $117,000 in 2014; the level is increased annually for inflation. Employers pay another 7.65%. (These totals include 6.2% for Social Security and 1.45% for Medicare.)
The way Social Security’s benefits are designed, at this year’s $117,000 income level, you receive the maximum credit—those earning higher salaries would not qualify for any more benefits. That’s why requiring wealthier people to pay even higher taxes without any additional income would break the implicit bond between your contributions and the benefits you may receive. And the move would certainly undermine support for the program.
Whatever Social Security lacks in progressive taxation it more than makes up for in the benefits it pays out, which are heavily weighted toward lower earners. Here’s how: The program breaks a person’s lifetime earnings history into three dollar segments that are divided by so-called “bend points.” Adjusted annually for inflation, the bend points are $816 and $4,917 in 2014. For the first $816 of your lifetime average monthly Social Security earnings, 90% are credited toward your monthly benefits. Between $816 and $4,917 in earnings, only 32% are applied to benefit entitlements. And for average monthly lifetime earnings above $4,917, only 15% are counted in determining your monthly retirement benefit.
Add it all up, and lower-income retirees wind up with Social Security benefits that make up a much higher portion of their pre-retirement incomes, typically 50% or more, than wealthier households, which may receive less than 20% of income from these benefits.
That payout usually exceeds the amount that lower-income beneficiaries put in, according to research by the Urban Institute, a Washington non-profit. (That’s notwithstanding the mantra of groups pushing to protect and even expand Social Security: “It’s Your Money; You Paid for It.”) The difference between the amount lower-income households pay and the benefits they eventually receive comes out of the pockets of higher-paid workers.
Of course, balancing Social Security by jacking up payments by wealthier earners feels good to many people and may even seem fair. But let’s try a thought experiment. What if Social Security worked like a 401(k) plan—you contributed a percentage of your salary, often matched by an employer contribution, and the account grows tax-deferred until you withdrew it at retirement. If I put $5,000 a year into my 401(k), but you earn more and can put $20,000 into yours, is this unfair? Should some of your contributions be placed instead inside my 401(k) simply because you make more money?
If you think Social Security is different from a 401(k), then you must also be viewing it at least in part as a welfare program that should be taking assets from the top 10% and distributing them to the other 90%. I don’t share this view, but I would support boosting the earnings ceiling by a hefty amount. Payroll taxes used to catch 90% of all wages. After years of lopsided wage gains by wealthier persons, only a little more than 80% of wages is currently subject to payroll taxes. It would be a reasonable move to restore the original level of taxation.
Even so, Social Security’s primary mission is to provide retirement security—a safety net that would help keep aging Americans out of poverty. It was not supposed to be a tax collector. That’s why I think the best way to look at the program is as a form of insurance for longevity, rather than an investment that should give you a better-than-break-even rate of return.
So if you believe that wealthy people should pay higher taxes, change the tax code. Don’t look to Social Security to do this work for you.
The Committee for a Responsible Federal Budget, a Washington non-profit, has a Social Security calculator showing reform options and their impact. If you use this tool, we’d like to hear how you would reform Social Security, so please share your ideas. We’ve all got a stake in this.
Philip Moeller is an expert on retirement, aging and health. He is an award-winning business journalist and a research fellow at the Sloan Center on Aging & Work at Boston College. Reach him at firstname.lastname@example.org or @PhilMoeller on Twitter.
There is a lot more to relocating for a job than a bigger paycheck
Fair enough: There’s a limit to what mere mortals can learn from the career decisions of people who can routinely hit three-pointers under pressure or jump over other world-class athletes to dunk basketballs.
But a closer look at the high-profile decision-making process of NBA superstars LeBron James and Carmelo Anthony over what teams they’ll be playing for next season reveals that they grappled with questions that many of us face when deciding whether or not to take a new job.
Should you always take the higher salary?
If salary were the only factor when Anthony was weighing whether to stay with the New York Knicks or move to a new team, his decision would have been clear days or weeks ago. After all, the Knicks offered Anthony more than $120 million over five years to stay in New York vs. “just” $96 million from the Los Angeles Lakers and $75 million from the Chicago Bulls for four-year contracts. That comes out to $25.8 million a year to stay with the Knicks, $24.3 million to join the Lakers and $17.5 million to be a Bull.
But other factors apparently gave him pause. The Bulls are considered the team with the best shot at a championship next year, so a move to Chicago could have boosted Anthony’s chance at post-season glory. And Los Angeles might have provided better job opportunities for his budding actress wife, La La Anthony. In the end, it appears that money ultimately swayed Anthony to stay with the mediocre Knicks.
And while we don’t yet know all the details behind LeBron James’ decision to go to the Cavaliers, staying in Miami could have meant a pay cut if the team needed to make room for more high potential players.
In any case, it’s worth considering the possibility that joining a company that’s on a faster track or at top in its industry can pay off in the long run, even if it means less money upfront. Rosemary Haefner, VP of human resources for jobs site CareerBuilder, says you should make sure you see a clear opportunity to add skills that will advance your career or otherwise help you move you up the ladder faster — or that you’ll be able to accomplish something that will make you more attractive to future employers. That could mean a chance to add management experience to your resume, work closely with the top brass, or be part of cutting-edge projects.
Should I consider cost of living?
If you consider moving for a new job, take care that a higher cost of living in the new city won’t eat up any additional pay, warns Erol Yildirim of the Center for Regional Economic Competitiveness, which publishes a quarterly cost of living index for the U.S. “There’s a lot more than income that affects your standard of living,” he says. That may not be such a big deal for someone like Carmelo Anthony, even though New York City is regularly at the top of the CREC list, with the after-tax cost of living in Manhattan at twice the national average.
Housing is the biggest expense (for most people about 30% of income goes to home-related expenses). The index also takes utilities, groceries, transportation and health care into account. You can use salary data provider Payscale’s cost-of-living calculator, which will not only show you the cost-of-living difference, but how much you need to make in the new location to maintain your current standard of living.
Do taxes matter?
Taxes can take a big bite out of your income. You can’t escape taxes altogether, of course, but some places are friendlier than others. LeBron James, for example, is leaving one of just seven states that has no income tax. In New York, Anthony will be in one of the highest taxing states in the U.S. New York City is one of the few cities in the U.S. that has its own income tax and New York state has the eighth highest state income tax rate. Beyond income taxes, you should factor in property taxes and sales taxes too. You can find details for taxes on income, property and retail sales for every state at the Tax Foundation.
Is job security more important than a bigger paycheck?
A Knicks deal allows Anthony, now 30, to lock in a high paycheck for five years, one more than he’d been offered in either L.A. and Chicago. He might not command nearly as much as a 34-year-old free agent as he does now, so staying with the Knicks offers financial security. The lesson for the rest of us? If you’re at the peak of your career – for most people that’s in their 40s and 50s – this is the time when you have the highest earning power. If you’re valued at your firm, trading stability for a new job where you need to establish yourself is a risk. “When you’re the new guy, you may be more vulnerable if rocky times hit,” says Haefner.
What does a new job mean for your family?
Family was definitely a factor for LeBron. He told Sports Illustrated that returning to his hometown was always his intention: “I have two boys and my wife, Savannah, is pregnant with a girl. I started thinking about what it would be like to raise my family in my hometown. I looked at other teams, but I wasn’t going to leave Miami for anywhere except Cleveland. The more time passed, the more it felt right.”
Anthony publicly said his decision also hinged on how it would affect his family. Beyond his wife’s opportunities in Hollywood, the Anthonys have many ties to New York. La La Anthony grew up in New York and Anthony spent his early years there before moving to Baltimore. Moving their seven-year-old son Kiyan to a new city would have been another challenge. In an interview with VICE Sports, Anthony said
“My son goes to school and loves it here (in New York). To take him out and take him somewhere else, he would have to learn that system all over again. I know how hard that was for me when I moved from New York to Baltimore at a young age, having to work your way to try to make new friends and fit in and figure out the culture in that area.”
Talk about what relocating would mean for your family. Will your spouse be able to get a comparable job? If you have children, what are the schools like? How will the kids feel leaving friends behind? Is the lifestyle a good fit for everyone? How far will you be from your extended family?
Relocating will have a major impact on your professional and personal life. The more factors you weigh, the better the decision you can make, whether or not you make a multi-million dollar salary.