This is a lazy argument that I even heard Bettman regurgitating. It's not 1995 anymore where people could make money hand over fist wherever they lived.
Now do i think anything should be done about this? Nope, state/province taxes are not the leagues problem. Does this absolutrly factor into player contracts and signings right here right now in 2025? Absolutely.
Just because Bettman made the argument doesn't mean it's wrong, though.
I can also speak to the difference cost-of-living makes from first-hand experience. I used to live and work in Silicon Valley. When I moved back to Pittsburgh, I took a 20% cut in pay, and yet ended up with more money in my pocket after expenses, and the difference in taxes was not nearly enough to account for that.
Seriously, real estate prices alone are a massive difference. I couldn't afford a house out there. As soon as I moved back to the Pittsburgh area, I bought a 4 bed/3 bath house on 2 acres of woodland. At the time I left, that would have been been $5-10 million, easy, in Silicon Valley - just for the land alone. I didn't even come close to 1/10th of that price here.
Do things like taxes factor in? Sure, but it's far from the top priority. When one weigh pros and cons of different teams, the Lightning and Panthers check off a lot of boxes on the pro-side, including the most important ones. Not having to pay state income tax is on the list, sure, but it's likely pretty far down the list. If it wasn't, the Bruins, Rangers and Kings would have a really difficult time signing anyone, considering those teams are in three of the most highly taxed states, and yet, they don't seem to have the same problem, now do they?
I think it's rather more likely that the Leafs have a difficult time getting players to take discounts, or to sign there in the first place, is the way that their players tend to be treated by the media and the fans the moment anything goes wrong. And they haven't exactly been doing well enough in the playoffs to make up for that, either.