MLB’s Competitive Balance Tax Is Anything But

One of my favorites paintings is René Magritte’s The Treachery of Images. Basically, it’s a painting of the pipe with “this is not a pipe” written on it in French. While interpretation is in the eye of the beholder, one can argue that it makes two points. First, there’s the wordplay; a painting is not a pipe. But there’s a double-meaning you can take, too: the frequent incongruity between what a word says and what a word actually is. (If you’d like to read a lot more about this painting, Michel Foucault has just what you need!)
MLB’s competitive balance tax has a lot in common with Magritte’s pipe. It says it’s about competition, but without any mechanism to ensure that the proceeds improve competition. It says it’s about balance, but it has no way to ensure that balance. It’s described widely as a luxury tax, but it’s not that either. Luxury taxes, historically, have been directed at what economist Fred Hirsch termed “positional goods,” or goods that are highly prized based on their scarcity and prestige value. Labor costs in a labor-intensive field, though, aren’t really a luxury good, and MLB’s business is mainly putting teams of baseball players on the field. Everything MLB does stems from those games; if the teams didn’t exist, there wouldn’t be as much clamor for t-shirts with cardinals sitting on a wooden stick or ice cream served in a small plastic helmet with a creatively spelled abbreviation of “stockings” on it. Players are no more luxuries for a baseball team than leather is for a shoe company.
But let’s get to the competitive balance side of things. MLB’s argument is that the CBT is needed to increase competitive balance. Yet there’s very little evidence that it actually has increased competitive balance, and if anything, teams are farther apart since the CBT was implemented, not closer together. From 1984 to 2001, leaving out shortened seasons, the standard deviation of winning percentage was about 67 points. From 2002, the first year of MLB’s modern CBT, to ’21 (excluding the shortened 2020 season), that increases to 74 points; since the start of 2016, when salaries have been static, it’s 80 points. Read the rest of this entry »