Wednesday, January 17, 2007

 

Remember the Luxury Tax on Yachts?

When I saw this:

“The Senate Finance Committee unanimously approved by voice vote today a proposal to sharply limit the earnings corporate executives and other highly paid employees can place tax-free into deferred compensation plans, one of the most popular executive benefits in corporate America.” Senators Approve Executive Benefit Limit - washingtonpost.com


...I immediately thought: how does this affect Baseball?

Remember A-Rod has a significant portion of his salary deferred – estimated at $36,000,000 over the life of his $252,000.000 contract signed back in 2001. For 2007, $4,000,000 will be deferred. CNNSI.com - MLB Baseball - Breakdown of A-Rod's record $252 million contract

Since he’s a Yankee, I really don’t care about any negative implications for him or the Yankees. And there may be a clause within to grandfather previously-signed contracts but I’m going to wait until the bill is signed as law before I make any real commitment toward understanding the fine points within. But cash flow is an important business consideration and the implications for teams with salary cap issues (mainly outside of baseball), debt and previously-structured cash revenue streams may be initially significant.

Safe to say though, that if this becomes tax law, deferred compensation will simply take on a different form since only a moron purposely takes on taxable income that he/she doesn’t actually receive. Perhaps we’ll just have high pay individuals agree to future consulting deals or the like. Second safe prediction – somewhere CPAs and attorneys are scheming to mitigate this bill’s effect.

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