Wednesday, December 22, 2010

Luxury Tax Is a Weird Thing

The story came out today that the Yankees and Red Sox were the only two clubs that had to pay the Luxury Tax. The Yankees were hit with a tax of $18 million while the Red Sox have to pay about a mil and a half. Of course, the tax is an instrument that rewards less successful teams to create a bit of parity. Supposedly, that money is to be used for player development to help even the playing field. The whole thing seems patently un-American.

Here's what it is like. The Fan lives in northern Maine. This is the home of lumber and potato farms. Let's say you have a group of 30 farmers. Two of the farmers are perhaps on the best land or perhaps they make the most of the land. Or just perhaps, they inherited more money from their parents and can afford better equipment. So those two farmers make more money than the other twenty-eight. The other twenty-eight say it's not fair that two farmers have more of an advantage and can make more money. So the thirty farmers decide to tax the amount of money those two uber-farmers make or not make, but spend to make yield so many profitable potatoes. Those two farmers are taxed and that money is distributed to the other farmers.

That wouldn't happen, would it? And what would those other farmers do? Put the extra money in their pockets just like the baseball owners do. No matter how hard the Fan tries to be open minded and consider all points of view, there are no parity opinions that make any sense to this observer. As long a team is operating under the rules, then all is fair in a free economy. But of course, that's the crux of some of the arguments isn't it? Major League Baseball doesn't operate in a free economy. It is is protected by act of congress with an exemption that allows them to operate as a monopoly. As long as Congress feels that baseball is behaving itself, the exemption is safe.

Okay, the Fan gets that. But still, inside that monopoly are 30 independent entities that plot their own courses, make their own decisions, fly by their own philosophies and either fail or succeed on their own. But they don't have to have great success. The money that all teams make from the marketing of the MLB license nets them all millions of dollars. Any team that isn't making money, simply isn't running their businesses very well. Well, Oakland and Tampa may be exceptions to that with their stadium issues. But still. The point is that inside the monopoly is a free market, which is still the American way.

So why do we add this communistic element of the luxury tax? The Fan is always surprised that the Yankees and the Red Sox never rebel against this system and simply pay their tax every year. If this Fan owned those franchises, there would be some bloody screaming. Those two teams built their brand, took advantage of media deals and built themselves into the most profitable businesses in baseball. So why should they voluntarily give some of that money away to the Pirates, for example, who have been run like they were owned by a twelve year old?

But there it is. The Yankees did cut down their dole out by some $7 million over the previous year, so perhaps the gap is closing and the Yankees, by all accounts seem to have been more fiscally sensitive since the old man stepped aside and then died. It's just weird is all. To make a team pay other teams that aren't successful because they are successful just seems odious to this writer.

2 comments:

Captain Canuck said...

your farm analogy is a little off topic. the luxury tax isn't because there are two farms making more money than the other 28. it's because there are two farms spending more money on equipment the other 28.
baseball does not have a hard salary cap, it has a soft one. if you spend over the soft cap, you are taxed. only two teams have spent more money on payroll than the soft cap, thus, they got taxed.

William Tasker - Caribou, ME said...

Did sort of put that equipment thing in that paragraph, Captain (one of the best names out there by the way).

Your point is understood and taken. But it still doesn't seem right. Just this Fan's opinion. Thanks for he comeback though.