Hockey Outsider
Registered User
- Jan 16, 2005
- 9,439
- 15,605
For those of you who are suggesting that we just calculate the after-tax cap hit for each player:
Take Auston Matthews as an example. He plays for the Leafs in the province of Ontario, which currently has a top marginal tax rate of 53.5%. But it appears (based on publicly-available information) that he's structured his remuneration in a way that limits his combined tax rate to his applicable US tax rates (which would be much lower - around 41% assuming his home state of Arizona).
Matthews and Marner are teammates, but Matthews' effective tax rate would be in the low 40's, and Marner's would be in the low 50's. They play for the same team, but their effective tax rates are significantly different. After taxes, Matthews' take-home pay would be roughly $1.9M more than Marner's ($1.2M due to smart tax planning, and $0.7M because of higher pay).
What tax rate would you use? If you want to use their actual tax rate, you'd need to accumulate a lot of personal financial information about each player. That's problematic for two reasons. First, the NHLPA would presumably push back and try to defend their members' privacy (yes their salaries are public, but not their tax planning strategies, deductions claimed, etc). Second, the owners would have to pay an army of accountants and lawyers to process it (spending money to solve a problem that the owners don't seem to care about).
On other other hand, if you want to use an approximation (ie "just treat both of them as facing 53.5%"), then you're intentionally introducing false information into the cap calculation. We're not talking about a rounding error here. In the example above, we're talking about a difference of more than a million dollars (if you simply pretend that Matthews and Marner face the same tax rate by virtue of playing in the same province). That's just one example on one team. If we're going to use an approximation, why not ignore taxes altogether? In principle, I'd rather not quantify something than quantify it in a way that's unfair and misleading; and this would simplify the process as well.
These are a few reasons as to why an after-tax salary cap would be so complex (and would require hundreds of thousands of dollars in professional fees each year to maintain). Wealthy people working across borders have access to all kinds of planning that don't apply to regular people (like you and me), and that makes it so much harder to implement.
Take Auston Matthews as an example. He plays for the Leafs in the province of Ontario, which currently has a top marginal tax rate of 53.5%. But it appears (based on publicly-available information) that he's structured his remuneration in a way that limits his combined tax rate to his applicable US tax rates (which would be much lower - around 41% assuming his home state of Arizona).
Matthews and Marner are teammates, but Matthews' effective tax rate would be in the low 40's, and Marner's would be in the low 50's. They play for the same team, but their effective tax rates are significantly different. After taxes, Matthews' take-home pay would be roughly $1.9M more than Marner's ($1.2M due to smart tax planning, and $0.7M because of higher pay).
What tax rate would you use? If you want to use their actual tax rate, you'd need to accumulate a lot of personal financial information about each player. That's problematic for two reasons. First, the NHLPA would presumably push back and try to defend their members' privacy (yes their salaries are public, but not their tax planning strategies, deductions claimed, etc). Second, the owners would have to pay an army of accountants and lawyers to process it (spending money to solve a problem that the owners don't seem to care about).
On other other hand, if you want to use an approximation (ie "just treat both of them as facing 53.5%"), then you're intentionally introducing false information into the cap calculation. We're not talking about a rounding error here. In the example above, we're talking about a difference of more than a million dollars (if you simply pretend that Matthews and Marner face the same tax rate by virtue of playing in the same province). That's just one example on one team. If we're going to use an approximation, why not ignore taxes altogether? In principle, I'd rather not quantify something than quantify it in a way that's unfair and misleading; and this would simplify the process as well.
These are a few reasons as to why an after-tax salary cap would be so complex (and would require hundreds of thousands of dollars in professional fees each year to maintain). Wealthy people working across borders have access to all kinds of planning that don't apply to regular people (like you and me), and that makes it so much harder to implement.
