The NBA’s luxury tax is at the heart of why there will be no games the first two weeks of what should have been the NBA season.
The owners say a stiffer luxury tax is needed to provide competitive balance in the league (to help the Kings compete with the Lakers). The players say that this is a hard salary cap by another name and they will not take it. Both sides have dug in their heels.
But what tax levels are we talking about? Zach Lowe at Sports Illustrated has the details.
But first, as background, the tax under the old system was dollar-for-dollar. Last year the tax started at $70 million and every dollar over that amount a team spent it had to pay in tax. That money was divided up among the teams under the tax threshold. Your champion Dallas Mavericks paid more than $17 million tax, the Lakers led the way paying more than $21 million in tax.
Those numbers would go up sharply under the new plan.
• The tax would start at $1.75 in penalty payments for every dollar a team is over the tax threshold. Say goodbye to the dollar-for-dollar hit, which was the maximum penalty a team could pay under the old system.
• That $1.75-to-1 ratio would last for the first $5 million a team is over the tax threshold. For every $5 million increment after that, the penalty would jump by 50 cents per dollar. So, for spending over the threshold between $5 million and $10 million, the penalty would be $2.25-to-1. For spending between $10 million and $15 million, it would be $2.75-to-1. And so on.
• The tax threshold would begin near where it did last season, when the salary cap was set at $58 million and teams crossed into luxury-tax territory at the $70 million mark.
Lowe does the math and figures out the Lakers would have paid $53.7 million in tax on their salary from last season.
The players are right, that would push down spending some. It means the Lakers could not just keep spending to replace Luke Walton, who made $5.2 million last season not to fit in the plans.
But the big markets would still be able to spend into that tax some, more than smaller markets. They would have that advantage, just lessened.
And what no luxury tax can do is save a team from incompetent management and bad decisions. The teams with the best general managers, who scout well and get the right pieces to fit together, will still win. In the NBA, that more than spending has always separated the good from the bad (see the San Antonio Spurs, or the current Oklahoma City Thunder).
Just for the record, the same wealthy owners crying for this stiffer luxury tax in basketball would scream “socialism” at the top of their lungs if this same tax were applied to any of their other businesses. Savor the irony.