Why the luxury tax increase is tip money to the 2017 Dodgers
News: The Dodgers are expected to bring back their top three free agents — Kenley Jansen, Justin Turner and Rich Hill — at a combined commitment of $192 million.
Reaction: What about those supposedly stiff luxury-tax penalties in the new collective bargaining agreement?
They don’t fully kick in until the 2018 season, so the Dodgers are taking advantage of a one-year window in which they can run the same $250-million payroll as they did this year and pay only another $3 million in taxes.
For 2017, the luxury tax will not be assessed at the rates announced in the outline of the new collective bargaining agreement. The rate instead will be phased in — at an average of what the team would have paid under the old system and what it would pay under the new system.
The Dodgers ran an approximately $250-million payroll — for luxury-tax purposes — last season. The tax was 50% on every dollar over $189 million. That’s $30.5 million.
With the tax structure in the new labor agreement — the 50% on every dollar over $195 million, plus 12% on every dollar between $215 million and $235 million, plus 45% on every dollar over $235 million — the Dodgers would have been charged $36.65 million next season.
The difference is $6.15 million. Split that — $3.075 million — and add it to $30.5 million. Thus the Dodgers’ luxury tax payment for 2018 would be $33.585 million — basically, another $3 million over what it will be this year, based on the same $250-million payroll.
And the draft penalty — a team more than $40 million over the tax threshold moves down 10 picks in the first round — does not kick in until 2018.
The Dodgers still want to lower their payroll — a little for this season, a lot more for next season, to avoid the draft penalty — as they fulfill their promises to replenish their talent base with home-grown players and to comply with baseball’s debt service rule.
They could get modest payroll relief — if not much in the way of a prospect return — by trading Scott Kazmir ($32 million left) and/or Brandon McCarthy ($20 million left) and paying some of the contracts, which extend through 2018. They also will drop $43.5 million after the 2017 season with the expiring contracts of Carl Crawford, Andre Ethier and Alex Guerrero.
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