Wednesday, November 12, 2008

How Higher Taxes Will Effect Agents

Below are some of the thoughts and words of Darren Heitner regarding Obama and his new tax ideas and how they will hurt/help agents. I happen to agree with Darren on most of the issues stated below. I believe the tax increase will make agents/ team managers to try and do some deals prior to the upcoming deadline where their taxes will get increased. This will not hurt all clubs, but the significant tax increase can and will still hurt their overall budget and since the MLB has no salary cap, teams will not think to much about it when signing big name players they need to fill the roster.

In short I believe the tax increase will have an impact but not a negative one, as teams will still be forced to sign big contracts for big name players. It will only cost GM's more money now, as agents will now include the higher tax rate as consideration in their negotiations.

"Agents are looking to what the future may hold in taxes now that Obama has been declared the next President of the United States. Obama would like to raise the top federal income tax rate from 35% to 39.6%. At this point, it is merely a wish. There is no knowing whether such a plan ever goes into effect. If the tax rate were to be increased for the next fiscal year, then signing bonuses paid before Jan. 1 should not be taxed at the higher rate. Thus, some agents are thinking about getting their free-agents into an established uniform earlier this time around due to potential tax breaks over signing later on.

My thoughts are that the teams who notoriously spend money will continue to do so, while the Marlins, Rays, Royals, etc. keep their low payrolls. The real change may be seen with those clubs that spend somewhere in the middle. If sponsorships and/or ticket sales go down, expect those teams to cut salaries. However, I do not see teams adopting such measures proactively. Instead, I think that any salary cuts will be based off of lower figures once they start rolling in next year (if numbers are indeed down at all). As far as the federal income tax rate, it should be interesting to see if free-agents tend to sign earlier this year due to the potential of a raise in rate by the new Democratic administration."

To read the rest of Darren's article on
click here.

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