Luxury Tax Penalty

[jambr380]

As we move forward with our current roster it will be almost impossible to avoid the luxury tax in future years. That is a given. However, this topic is more about the luxury tax and the implications they pose in general.

In the 2011 CBA, one agreement was that there would be greater luxury tax implications the further you go over the tax line. Previously it was a 1:1 ratio, but it became much more harsh. From ESPN.com:

Starting in 2012-13, teams pay an incremental tax that increases with every $5 million above the tax threshold ($1.50, $1.75, $2.50, $3.25, etc.). Teams that are repeat offenders (paying tax at least four out of the past five seasons) have a tax that is higher still -- $1 more at each increment ($2.50, $2.75, $3.50, $4.25, etc.).

In 2012-13, the salary cap was set at just over $58M with a tax line of $70.3M. Compare that to next season where the salary cap is set to be ~$101M with a tax line of ~$123M. And it only gets worse from there with the cap and tax set to increase at proposed levels of $5-7M each year through at least the 2025-26 season.

My point? When this original deal was put in place, it used numbers rather than percentages to deal with tax 'offenders.' With a tax line of only $70M, it would be quite difficult to blow by that number too much since salaries were only able to increase a certain amount. However, with the cap and tax at all-time highs and continuing to soar, we are still using the 'every $5M above the tax threshold' parameters. I don't believe this part of the agreement was very well thought out.

So what do you think? Should the new CBA have addressed these antiquated tax numbers from 2011 to ease the burden with such otherworldly salaries or do you believe that teams spending above the tax deserve whatever penalty they receive?

[saltlover]

Yes, I’ve absolutely had a similar thought.  When they redid the deal, they increased the amount of the apron by 50% and then pegged the apron to increase proportionally with the salary cap.  They should have done the same thing with the tax brackets — made them $7.5 million and also increasing every year.

[tazzmaniac]

I like it the way it is.  Helps a bit to stop super teams from forming.  Helps the smaller markets.  Penalizes teams that don't manage their cap space well.  We're in a much stronger position under the current rules with Danny in charge. 

[droopdog7]

I think the whole [dang] thing should be revisited.  I would opt for going back to the previous system, where there were no caps/tiers on individual salaries, no luxury tax period, and teams could sign their own guys for whatever they want.  So if a team wanted to give one guy 99% of their cap (or more even), they could.

What would this accomplish?  Super teams based on drafting could stay together, assuming an owner is willing to foot the bill.  But at least in this case, the owner wouldn't be at a competitive disadvantage due to luxury tax increasing penalties.  Indeed, this system would provide a competitive advantage to the current team because they would, in theory, offer a lot more than any other team.

Second, it would prevent super teams from forming via free agency.  You wouldn't be able to open up, say, three max slots because in theory you would be able to offer that money to just one player.  And that one player may want it all.  It's not like you would have a team say, hey, we have 80 mil to spend and we'll do it three ways okay.  AND, the current team could offer even more still.

The issue before was salaries going way to high because owners could not control themselves.  And I get it.  But, I would be asking owners to control themselves.  In terms of smaller markets, I'd vote for an NFL system with much broader revenue sharing.

[jambr380]

Thanks for the responses - I like how all of you provided different convincing arguments to the question at hand. TPs to all! 

To droops point, a complete re-do of the system would be interesting, but I’m not sure if it would be popular among all. I do think it is unfortunate that teams with good, home grown talent sometimes need to let them move on. Perhaps there would be a way for teams to not be taxed on 1 or 2 of their own drafted players even if they eventually go over the tax to sign them. An exception of sorts.

At the very least, I do hope they revisit these numbers in the next CBA (when salaries will be astronomical). As SL pointed out, they did the same thing with the apron; they probably should have considered the same with the tax.

[A Future of Stevens]

Thanks for the responses - I like how all of you provided different convincing arguments to the question at hand. TPs to all! 

To droops point, a complete re-do of the system would be interesting, but I’m not sure if it would be popular among all. I do think it is unfortunate that teams with good, home grown talent sometimes need to let them move on. [/b]Perhaps there would be a way for teams to not be taxed on 1 or 2 of their own drafted players even if they eventually go over the tax to sign them. An exception of sorts.[/b]

At the very least, I do hope they revisit these numbers in the next CBA (when salaries will be astronomical). As SL pointed out, they did the same thing with the apron; they probably should have considered the same with the tax.

That could be interesting. Maybe you could have a scenario where you could designate one of your players as an exception (with the caveat of that player was drafted by your franchise.) That exception could help only get to one of the tiers of tax payer level.

For example: Say you drafted player X, and without that players salary you were just under the luxury tax. Then that player gets a max. Maybe instead of going into the deeper tax tiers, you only have to pay a capped tier level. Say if the player was unexempt you would have to pay $3.25 (or whatever,) but that salary was capped at $2.50.


My point is there are a ton of creative avenues you could pursue in regards to home drafted talent, that would allow a team to prioritize paying their own guys.  Ideally that scenario would let you remain competitive in signing other players.

[jambr380]

Thanks for the responses - I like how all of you provided different convincing arguments to the question at hand. TPs to all! 

To droops point, a complete re-do of the system would be interesting, but I’m not sure if it would be popular among all. I do think it is unfortunate that teams with good, home grown talent sometimes need to let them move on. [/b]Perhaps there would be a way for teams to not be taxed on 1 or 2 of their own drafted players even if they eventually go over the tax to sign them. An exception of sorts.[/b]

At the very least, I do hope they revisit these numbers in the next CBA (when salaries will be astronomical). As SL pointed out, they did the same thing with the apron; they probably should have considered the same with the tax.

That could be interesting. Maybe you could have a scenario where you could designate one of your players as an exception (with the caveat of that player was drafted by your franchise.) That exception could help only get to one of the tiers of tax payer level.

For example: Say you drafted player X, and without that players salary you were just under the luxury tax. Then that player gets a max. Maybe instead of going into the deeper tax tiers, you only have to pay a capped tier level. Say if the player was unexempt you would have to pay $3.25 (or whatever,) but that salary was capped at $2.50.


My point is there are a ton of creative avenues you could pursue in regards to home drafted talent, that would allow a team to prioritize paying their own guys.  Ideally that scenario would let you remain competitive in signing other players.

And that is what the NBA seems to desire with the super-max designation this past offseason. I understand that with the max signings of Horford and Hayward to get to the cap, it is the Celtics' own 'fault' if they aren't able to re-sign Smart/Rozier (let's not go there with Brown/Tatum), but it sure would be nice to have the option of not losing them for nothing.

A less aggressive penalty for a designated player might make for a nice middle ground.