Tax Disadvantages — for the Yankees?
Believe it or not, the New York Yankees are, at this point, likely out of the bidding for highly coveted center fielder Carlos Beltran. The Daily News has a pretty good discussion of the reasons for their exit, which include the team’s reluctance to pay out more than Alex Rodriguez’s annual salary and its belief that the current offense can do without another major slugger.
Beltran’s agent, Scott Boras, has reportedly said that $17 million per year is the starting point; the Yankees have apparently gone with $15 million. Why? According to the article, Beltran would still just be “a support player in their galaxy of superstars.” Plus:
There is also a sentiment within the organization that the near-guarantee of a postseason berth each year and the stature that comes with playing center field at Yankee Stadium ought to be significant chips in their favor as well.
Beyond these sports-specific reasons, could taxes — the government kind as well as the luxury sort — also be a factor? It’s hard to tell for sure, of course, but Darren Rovell provides a solid description of how they could be impacting negotiations:
Beltran Has Sizable Tax Considerations (ESPN.com)
If Beltran were to sign with the Mets or the Yankees, he would be playing half his games in the highest tax bracket in one of the states with the highest taxes. Given that he’d have to pay roughly 90 percent of the state tax rate of 8.75 percent for those games, he’d have to be paid a gross amount worth at least 4 percent more than what the Astros offered, according to jock tax expert David Hoffman.
The Astros have reportedly offered Beltran a deal that would pay him an average of $16 million per year for six years. That means a New York team would have to offer Beltran at least $16,680,000 per season in order for the free agent outfielder to get a value commensurate with the Astros deal. That doesn’t even take into account the fact that, according to cost of living calculators, Beltran would have to pay about 2.5 times more for the same standard of living in New York when compared to Houston.
A number of reports put the Yankees out of the Beltran stakes. That might be because they have to worry about their own tax situation. If the team agrees to give Beltran a contract worth $16,680,000 in 2005, their total bill for Beltran’s contract will actually be more than what they are paying Rodriguez, who is due $21 million ($4 million more is deferred). Beltran’s contract will cost the Yankees $6.7 million more than the checks they make out to the free agent because they will be a third time offender of the luxury tax threshold. That means that Beltran’s hypothetical $16.8 million contract will actually cost the Yankees $23.4 million.
Read the entire piece, which also has information on why Beltran might want to obtain a contract before January 12, when modified rules on signing bonuses and FICA take effect.
For more on Beltran — and why the Yankees should have pursued him instead of Randy Johnson — see David Pinto. For more on taxes — and why, from a political standpoint, “real” tax reform should precede Social Security privatization — see Andrew Sullivan.