How has the MLB luxury tax threshold changed year over year

There was a time when the MLB players union felt that the luxury tax was merely a salary cap in some other form, which is why they rejected such proposals in 1994. However, in In the first post-strike collective bargaining agreement, chief executive Don Fehr “finally said yes to the luxury tax – the first time the union had agreed to any form of payroll restriction since free agency changed everything in 1976,” from Jon Pessah’s book The Game.

Although Pessah called the CBA a “huge win for Fehr and the union” for other reasons, the owners had their footing on the luxury tax issue. Luxury taxes have become a big problem for players in recent years.

In that CBA, the tax thresholds are set as follows:

  • 1996: no luxury tax
  • 1997: $51 million
  • 1998: $55 million, up 7.8%
  • 1999: $58.9 million, up 7.1%
  • 2000: no luxury tax
  • 2001: if MLBPA exercises its option for ’01, no luxury tax

Mechanics are also in place that could allow for higher 1997-99 thresholds, depending on where the fifth and sixth highest paychecks are in the game. Tax rates are set at 35% above average for ’97-98 and 34% for ’99.

While that CBA technically ended with two years of luxury tax-free, it became part of all future deals. The deal that began in 2003 saw the luxury tax renamed to a “competitively balanced tax”. The MLBPA was able to achieve a large initial increase in thresholds from where they stopped in ’99:

  • 2003: $117 million, up 98.6% from ’99
  • 2004: $120.5 million, up 3%
  • 2005: $128 million, up 6.2%
  • 2006: $136.5 million, up 6.6%

For this CBA, a concept has been introduced to penalize second, third or fourth offenders with a higher tax rate. The crime rate was first set at 17.5% in ’03 and 22.5% in 2004-05, but was phased out completely for ’06. A tax rate of 30-40% has been set for groups that exceed the threshold multiple times during the period of that collective agreement.

For the CBA starting in 2007, the tax thresholds are set as follows:

  • 2007: $148 million, up 8.4%
  • 2008: $155 million, up 4.7%
  • 2009: $162 million, up 4.5%
  • 2010: $170 million, up 4.9%
  • 2011: $178 million, up 4.7%

Here after the initial “new CBA” leap, we begin to see tax thresholds rise more slowly. The tariffs were set at 22.5%, 30%, and 40% and began to penalize teams that exceeded the threshold for consecutive years, introducing the concept of teams “resetting” the rate by going below the threshold within one season.

For the CBA starting in 2012, these are the tax thresholds:

  • 2012: $178 million, no increase
  • 2013: $178 million, no increase
  • 2014: $189 million, up 6.2%
  • 2015: $189 million, no increase
  • 2016: $189 million, no increase

Here, the players’ union made a major concession that had a double impact that they still feel to this day. If the achieved MLBPA were to simply repeat the increases from the previous CBA, the 2016 tax threshold would be around $232 million.

The subsequent agreement introduced the concept of a luxury tax tier, adding the first and second surcharge thresholds after the base tax rate. For example, 2021 includes thresholds at $210 million, $230 million, and $250 million. This CBA also sets out draft-related penalties.

  • 2017: $195 million base tax threshold, up 3.2%
  • 2018: $197 million, up 1.0%
  • 2019: $206 million, up 4.6%
  • 2020: $208 million, up 1.0%
  • 2021: $210 million, up 1.0%

Although better than the previous CBA, the MLBPA once again agreed to slightly raise the base tax threshold. A simple 5% annual increase starting in 2012 would put the 2021 base tax threshold at around $290 million, but it’s only $210 million. Not coincidentally, only the Dodgers and Padres exceeded their $210 million salary this year. You can see this restriction placed on a club like the Yankees, whose 2019 Open Day pay is lower than in 2005.

In current negotiations, MLB has made an initial proposal that includes lower The base tax threshold is $180 million. According to Gabe Lacques and Bob Nightengale of USA Today, “In the final proposals exchanged Wednesday, players requested a $245 million luxury goods tax threshold, with no progressive penalties for violators; owners are offering a threshold of $214 million, increasing to $220 million in the final year of the 5-year agreement.”

With the claim raised to $245 million, the MLBPA is proposing a 16.7% increase past the ’21 threshold, which will only begin to make up for the foundation they have lost due to non-existent or very small increases from 2012 onwards. MLB, meanwhile, wants to raise the base tax threshold to 1.9% for 2022 and is proposing an average annual increase of less than 1%. How has the MLB luxury tax threshold changed year over year

Jake Nichol

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