MLB trades to get harder under new GOP tax bill
In late December, the Republican-led Congress passed and President Donald Trump signed into law a sweeping overhaul of the U.S. tax code.
Millions of Americans soon saw benefits from the landmark tax cuts as their paychecks got bigger and their employers doled out bonuses in the wake of the reforms.
Our big and very popular Tax Cut and Reform Bill has taken on an unexpected new source of “love” – that is big companies and corporations showering their workers with bonuses. This is a phenomenon that nobody even thought of, and now it is the rage. Merry Christmas!
— Donald J. Trump (@realDonaldTrump) December 22, 2017
The legislation, however, could have an impact on professional sports beyond just allowing athletes to keep more of their money.
Specifically, the hot stove league is likely to be a lot cooler, according to new report.
Jim Tankersley wrote Monday in The New York Times that one overlooked provision of the law will make trades in MLB more difficult.
Under the old law, a player swap wasn’t subject to capital gains taxes. The tax code’s “like-kind” provision allowed business owners — from farmers to manufacturers to baseball teams — to exchange similar assets without either having to pay taxes on any gains until the asset was sold.
One word in the new law changes that, according to Tankersley.
He writes that “by adding a single word to the newly written tax code — ‘real’ — the law now allows only real estate swaps to qualify for that special treatment.”
If MLB teams face capital gains taxes every time they make a trade, there’s little doubt they’ll make fewer deals.
Other professional sports leagues could be affected as well.
According to The Times, the NBA “sent teams an email this month detailing the disruption of the trading system under the new law, but told executives it was still figuring out how to respond.”
Other difficult issues arise as well, including how teams can put a monetary value on a player.
Tankersley provides the example of the Astros’ deal to acquire Justin Verlander from the Tigers last season in exchange for prospects. For the capital gains tax to be applied, you have to come up with a dollar figure for the veteran pitcher.
“Was it the size of his contract?” Tankersley writes. “Mr. Verlander earned $28 million last year, while the players traded for him drew minor league salaries.
“Was it the additional wins he brought to the team? Statisticians estimate Mr. Verlander gave the Astros nearly two more wins last season, a value that, depending on the statistician, could reach $20 million.
“Or was it some calculation of the total future value Mr. Verlander will bring to the team, minus the total future value it gave up in the prospects it traded away — and possibly adjusted for the amount the team will have to pay Mr. Verlander?”
Figuring out a value for the prospects Detroit received in return is even more confounding.
“There is no fair-market value of a baseball player. There isn’t,” Daniel Halem, MLB’s chief legal officer, told The Times. “I don’t really know what our clubs are going to do to address the issue. We haven’t fully figured it out yet.
“This is a change we hope was inadvertent, and we’re going to lobby hard to get it corrected.”
If not, the complexity and capital gains taxes resulting from the new law could mean your favorite team won’t be able to deal for a much-needed arm or bat this summer.
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