Luxury Tax (sports)
A luxury tax in professional sports is a surcharge put on the aggregate payroll of a team to the extent to which it exceeds a predetermined guideline level set by the league. The ostensible purpose of this "tax" is to prevent teams in major markets with high incomes from signing almost all of the more talented players and hence destroying the competitive balance necessary for a sport to maintain fan interest. The money derived from the "tax" is either divided among the teams that play in the smaller markets, presumably to allow them to have more revenue to devote toward the contracts of high-quality players, or in the case of Major League Baseball, used by the league for other pre-defined purposes.
In North America, Major League Baseball has implemented the luxury tax system. The National Basketball Association also has a luxury tax provision; its utility is somewhat limited by the fact that the league also has a salary cap provision. The "hard" salary cap of the National Football League has prevented any need for a luxury tax arrangement. The National Hockey League also has a hard salary cap.
Read more about Luxury Tax (sports): Methods For Limiting Payroll
Famous quotes containing the words luxury and/or tax:
“But how do the poor minority fare? Perhaps it will be found that just in proportion as some have been placed in outward circumstances above the savage, others have been degraded below him. The luxury of one class is counterbalanced by the indigence of another. On the one side is the palace, on the other are the almshouse and “silent poor.””
—Henry David Thoreau (1817–1862)
“The government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
—Ronald Reagan (b. 1911)