Luxury Tax in Major League Baseball
- for reference please see List of Major League Baseball teams by payroll
Instead of a salary cap, Major League Baseball implements a luxury tax, an arrangement in which teams whose total payroll exceeds a certain figure (determined annually) are taxed on the excess amount. The tax is paid to the league, which then puts the money into its industry-growth fund.
A team that goes over the luxury tax cap for the first time in a five-year period pays a penalty of 22.5% of the amount they were over the cap, second-time violators pay a 30% penalty, and teams that exceed the limit three or more times pay a 40% penalty. The cap limit for 2010 is $170 million, and the cap for 2011 is $178 million.
As of the 2009 season, only the Boston Red Sox, the Los Angeles Angels of Anaheim, the Detroit Tigers, and the New York Yankees have paid any luxury tax; the Yankees have contributed to over 95% ($164.1 million) of tax payments, and have been subject to six of the eleven occasions the tax has been implemented.
Money collected under the MLB luxury tax are apportioned as follows: The first $5m is held in reserve, to pay for possible luxury tax refunds. Once it is clear that there are no refunds to be issued, this money is then earmarked for the Industry Growth Fund (IGF). 50% of the remaining money is used to fund player benefits, 25% is used to fund baseball programs in developing countries with no high-school baseball, and 25% is put into the Industry Growth Fund (IGF).
Read more about this topic: Salary Cap, Salary Cap in North American Leagues
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“A small garden, figs, a little cheese, and, along with this, three or four good friends—such was luxury to Epicurus.”
—Friedrich Nietzsche (1844–1900)
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Nor rain, wind, thunder, fire are my daughters.
I tax you not, you elements, with unkindness;
I never gave you kingdom, called you children.”
—William Shakespeare (1564–1616)
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—Camille Paglia (b. 1947)
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—Anna Quindlen (b. 1952)
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—Raymond Chandler (1888–1959)