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No, the luxury tax is not “destroying the game”

Despite hyperbolic claims to the contrary, Opening Day will still take place as scheduled.

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The poster child for this hysteria is Chris Cwik’s article over on Yahoo on Friday, literally headlined, “The luxury tax is bad for MLB, and is already destroying the game.” Now, there’s no doubt that the luxury tax has had an impact, especially this year. But what evidence is there that it is not functioning entirely as intended, rather than marking the death knell for baseball as we know it, as Cwik claims?

A quick reminder of the luxury tax, and how it works, is likely in order. I recommend Lookout Landing’s great post on the topic for the details, but in essence, it’s a soft salary cap. Teams which spend over a certain amount each year - $195 million in 2017, $197 million in 2018 - must pay a surcharge to MLB. This is based on a percentage of the amount they are over the limit for that year. The percentage varies from 20% if this is the team’s first (consecutive) season paying the luxury tax, to a whopping 50% for the third season on. There are also further penalty percentages if teams really overspend. Conceivably, a team could end up paying 95% of the overage amount.

[You might be asking, where does this money go? Mostly, back to the players. The first $13 million funds MLB playe benefit plans. Everything above that is divided 50/50: half goes to individual player retirement accounts, the other half is split evenly among all teams that didn’t get assessed any luxury tax that season. Yes, the D-backs will get cut a check for about a million bucks this year, just because the Yankees and Dodgers spent too much. I like this.]

The aim was simple: stop the “haves” from spending their way out of sight of the “have nots”. It took a while - the Yankees are currently enjoying their fifteenth consecutive season of paying the luxury tax - but it finally seems to be having an impact, with the profligate spenders eventually finding themselves restricted, and having to make creative moves to get back under the threshold. According to the Associated Press, the amount of luxury tax teams had to pay in 2017 was as follows:

  1. Dodgers $36.2 million
  2. Yankees $15.7 million
  3. Giants $4.1 million
  4. Tigers $3.7 million
  5. Nationals $1.45 million

The top two are responsible for about 85% of all luxury tax paid last season. But both the Dodgers and Yankees have vowed to get their payroll below the $197 million threshold for next year. That’s why, for example, Los Angeles traded Adrian Gonzalez, Brandon McCarthy, Scott Kazmir and Charlie Culberson to Atlanta, for Matt Kemp, with Kemp likely being gone from LA, long before Opening Day. The aim was to get out from under the salary tax, in time for the bumper free-agent class next winter, which includes the likes of Bryce Harper, Manny Machado and possibly Clayton Kershaw, who has an opt-out after this year.

The “problem” is that the Dodgers are still on the hook for $190 million in 2018. This means the team who had the highest payroll, each of the past four seasons, won’t be taking on any of this winter’s top free agents, because that would put them back over the cap. It’s exactly how the process was intended to work. But apparently, this limitation makes the off-season “less fun”. Well, it does, according to a fan of one of the teams assessed a penalty this year, anyway. That spoilsport MLB, stopping us from spending all the money that you poor people don’t have!

A major thrust of the argument for both Grant Brisbee and Kwik is that the luxury tax doesn’t help small-market teams at all. But it clearly does: simple supply and demand. Witness the Twins being in on Yu Darvish. Would that be possible if LA and NY had their usual blank check? It’s also a factor in a possible scenario where J.D. Martinez re-signs here, a one-year deal letting him re-enter the market next winter, when both the Dodgers and Yankees can spend more. The D-backs can take advantage of the shrinking window before A.J. Pollock, Paul Goldschmidt, etc hit free-agency, and as we discussed last month, received a one-time windfall which could fund such a deal for Martinez.

The system works. For make no mistake, Mike Moustakas, Martinez, Lorenzo Cain and the rest will not be unemployed on Opening Day - or, if they are, it will be their own choice. The market will settle down and take care of itself - as it has every single time since the 1996 CBA, when the luxury tax was introduced. Because, for the vast majority of teams, including the Diamondbacks, the luxury tax is entirely a non-issue. And for their fans, these complaints about the evil impact of one of MLB’s few efforts to effect competitive balance, tend to sound the same as hearing your boss whining about the cost of maintaining his private jet.

Brisbee baldly states, “There’s going to be labor strife because of this... The next CBA is going to be carnage.” Personally, I doubt it. The union has 1,200 members. This situation affects, maybe, a couple of dozen of them? They’d be idiots to go to war on behalf of the 1%. [Though certainly not the first, admittedly...] No sensible group would take a goose which is continuing to lay golden eggs and threaten to turn it into foie gras, largely for the benefit of Scott Boras. Right now, the worst-case scenario sees a player or two settling for $15 million this year, rather than $20 million. Pardon me if I don’t regard that as the baseball apocalypse.