Japanese baseball player Shohei Otani attends a press conference to present after signing a 10-year contract with the Los Angeles Dodgers at Dodger Stadium on December 14, 2023 in Los Angeles, California.
Frederick J. Brown | AFP | Getty Images
About a month after Shohei Ohtani signed a $700 million contract with Major League Baseball’s Los Angeles Dodgers, California’s trustees called for “immediate and decisive action” by Congress to limit high-income earners’ deferred income. Seeking “action.”
The Japanese pitcher’s record-breaking contract has $680 million deferred for 10 years, raising questions about whether it will be subject to future state taxes, especially if Ohtani ultimately leaves California. California’s top tax rate for 2024 is his 14.4%, which includes his 1.1% payroll tax.
California Secretary of State Maria Cohen mentioned the deal with Ohtani in a statement Monday, saying, “The current tax system allows unlimited forbearance for those lucky enough to fall into the top tax bracket, and the tax structure “There is a serious imbalance.”
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“The lack of a reasonable cap on deferrals for the wealthiest individuals exacerbates income inequality and impedes the fair distribution of taxes,” she said. “I urge Congress to take immediate and decisive action to correct this imbalance.”
The California Center for Employment and Economics estimates that deferring the $68 million a year for 10 years would save Ohtani $98 million over the life of his contract. However, this estimate uses several assumptions, and the exact terms of Ohtani’s contract are unknown.
Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, said California’s controller wants to limit deferred income, but that may not be the cause of the problem.
“What’s really going on here is a federal law enacted by a Republican Congress in 1995 to prevent states from taxing pension income,” he said. “Ohtani’s problem is that he can return to Japan and avoid California taxes.”
This provision prevents states from taxing nonresidents’ “retirement income” (including deferred compensation).
Deferred revenue is not a priority for Congress
William McBride, vice president of federal tax policy at the Tax Foundation, said some Democratic lawmakers have called for higher taxes on the wealthy, but they are focusing on areas such as so-called unrealized gains and investment growth, rather than deferred income. It is said that it is focusing on.
“Deferred income applies throughout the tax code,” including income from 401(k)s and executive compensation, he said.
If Congress were to enact limits on deferred income, “states would be in an even worse position in terms of their ability to collect revenue from these high earners and star athletes because they wouldn’t be there,” McBride said. he said.
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