The Effects of the Luxury Tax
Major League Baseball’s general managers are meeting in Palm Springs, Calif., this week, which kicks the Hot Stove burner from simmer to medium-low. The burner will turn to high next month at the Winter Meetings in Nashville.
Even on simmer, there is word from the Bronx that the Yankees won’t pursue “big time” — or even “less-than-big-time” — free agents this winter, despite rotation and outfield needs. We can debate whether to accept the “word from the Bronx” as true or just a negotiating ploy. What we do know is this: Yankees owner Hal Steinbrenner has said repeatedly that he wants to bring the Yankees below the $189 million luxury tax threshold in 2014. Why? Well, that takes some explaining.
The luxury tax is a shorthand term for the Competitive Balance Tax provisions in the Collective Bargaining Agreement. It imposes a penalty on teams with player payrolls above a set threshold. The tax is levied only on the portion of a team’s payroll that exceeds the predetermined amount. The luxury tax was first introduced in the 2003-2006 CBA and was designed to keep player payrolls from skyrocketing, without setting a hard salary cap.


