Explaining MLB’s luxury tax and why it shouldn’t be having a major impact on free agency

CBS Sports

The Major League Baseball offseason is, for the second consecutive year, incredibly slow with the owners increasingly beating the players at the negotiating table. We keep hearing about the luxury tax, which now seems to be operating as a salary cap. Again, the owners are winning as the percentage of revenue dedicated to player salary will very likely drop for the second straight year. 

Some might wonder about the penalties of exceeding the luxury tax threshold and I'm here to point out that — unless a team is over it three straight years — it's not that much. It's really not. 

For this season, the threshold is $206 million. Here's the rule: 

A club exceeding the Competitive Balance Tax threshold for the first time must pay a 20 percent tax on all overages. A club exceeding the threshold for a second consecutive season will see that figure rise to 30 percent, and three or more straight seasons of exceeding the threshold comes with a 50 percent luxury tax. If a club dips below the luxury tax threshold for a season, the penalty level is reset. So, a club that exceeds the threshold for two straight seasons but then drops below that level would be back at 20 percent the next time it exceeds the threshold.

With this in mind, let's say a club decides to spend $216 million on payroll in 2019. That's $10 million over the threshold, meaning the tax is $2 million. Given how much money in which Major League Baseball is swimming right now, that's a drop in the bucket. If your favorite team is avoiding signing Bryce Harper or Manny Machado because of this, you should be off-the-charts angry. 

Now, it's much more complicated than that, of course. If a team is over the threshold two straight years, the tax is 30 percent. Still! That only adds $1 million — to $3 million in taxes — in the above example of running a $216 million payroll instead of $206 million. 

#baseball, #professional

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