No, of course it's not that simple -- he's assuming the NYYs would always be paying the tax anyway and never be receiving the rebate of their revenue sharing pay-in, but the Sox wouldn't do so, and therefore would always gain that rebate.
Kind of an apples to oranges comparison, but it does show the increased disincentive teams may have to stay under the CBT threshold, rather than exceed it only slightly.
Here's the comparison I was making, I'm going to round off to make the math easier.
The luxury tax threshold is $180 million. The tax rate is 40 percent of the amount over the threshold and by going over the threshold at all a team forfeits a 25% rebate on its revenue sharing.
Team 1 regularly spends $210 million and has a revenue sharing bill of $40 million; they pay $12 million in luxury tax (.4*(210-180)) and give up an $10 million rebate on revenue sharing (.25*40), for a total penalty of $22 million on $30 million of spending (210-180) over the threshold. The effective tax rate on spending over the threshold is 22/30 =73% (instead of 40% under the old regime).
Team 2 regularly spends $185 million on payroll and has a revenue sharing bill of $28 million; they pay $2 million in luxury tax (.4*(185-180)) and give up a $7 million rebate on revenue sharing (.25*28), for a total penalty of $9 million on $5 million of spending (185-180). The effective tax rate on spending over the threshold is 9/5 = 180% (instead of 40% under the old regime).
Thus, I think the general conclusion that teams that had planned to spend way over the cap face a smaller effective tax rate than teams that just barely exceed the cap is the right way to think about it. Yet another aspect of the new CBA is calibrated perfectly to pretty much hurt the Red Sox more than any other team in baseball.
Thinking in terms of marginal tax rates, I think it is even starker. Going $1 over the threshold triggers a fixed cost of $10 million for team 1 and $7 million for team 2.
So, in essence, the marginal tax rate on spending over the cap is 40 percent for Team 1, because no single contract can get them back under the cap.
For team 2, simply trading their starting shortstop who makes $6 million can get them back under the cap. That transforms the fixed cost into a variable cost, because a failure to trade that shortstop means that he actually costs the team $15 million ($6 million salary and $9 million penalty). Hence, the marginal tax rate on that shortstop's salary is 150% (9/6).
Is there anyone who thinks Marco Scutaro is going to be worth $15 million in 2012?
Edited by Plympton91, 28 January 2012 - 12:21 PM.