Thread: Luxury Tax?
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11-15-2012, 01:22 PM
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Luxury Tax?

Why has there been no luxury tax system introduced yet on top of the salary cap and revenue sharing?

How it works in LMB:

MLB's current collective bargaining agreement sets a 'payroll threshold' each season that is somewhat similar to a salary cap. For the 2007 season, this threshold has been set at $148 million ($155 million in 2008). Should the average annual value of a team's total salary contracts surpass this threshold in any year, they pay a 'tax' on the amount over the threshold. The tax is graduated such that a team pays a progressively higher percentage every year it exceeds the threshold, to a maximum of 40%. As an example, when Roger Clemens signed with the Yankees this season, his salary was reported at $18.5 million. But since the Yankees have already exceeded the payroll threshold several times, they were forced to pay the maximum luxury tax on his salary of 40%. Applied to Clemens' salary, the tax comes to $7.4 million. So in actuality, Clemens is costing the Yankees $25.9 million this season.
The Luxury Tax is also called the 'Competitive Balance Tax'. Ironically, the money from the tax isn't distributed to smaller market teams to promote competitive balance. Instead, it goes into an 'Industry Growth Fund' that MLB uses for player benefits and to promote the growth of baseball around the world. Money is distributed to smaller revenue teams, but that money comes from MLB's revenue sharing program, which is entirely separate and independent of the luxury tax

The NHL could adopt a similar system yet cap how much over the cap a team could spend. As an example if the cap were $70M a team like NYR could spend up to $10M above the cap yet pay a tax of 25%. The money could either be used the same way that MLB does or all the money could go towards struggling franchises. A wealthy team could benefit from its wealth competitively but not at the financial expense of the less wealthy teams.

What other ways could the NHL get creative with a luxury tax which would help be a part of the solution to its financial problems?

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