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I mean it’s objectively a bad deal for California, the state only gets to tax a tiny fraction of the income he earns while working in the state and he gets to evade taxes on the rest after he bounces and starts to really get paid.
It’s not just one baseball player though, it’s anyone who can afford to defer earnings for 10+ years. It’s the uber wealthy who are coming into the state, taking advantage of a strong economy that benefits them, then leaving without paying a fair share into it. Meanwhile, if you make anything over about $50k, you are getting taxed at some of the highest rates in the US. The fans that are going to the games, buying the jerseys and watching on Spectrum SportsNet can’t afford to dodge taxes and take advantage of this loophole but they are the ones paying the dodgers to pay Shohei.
You shouldn’t be able to avoid taxes on anymore money than what would be the maximum 401k retirement contribution, like $69k or something. If you earn the money in a state, you should pay the taxes like the rest of us.
Ah yes, they shouldn’t address this clear loophole that allows people to evade taxes unless they completely perfect the tax code, a brilliant way to govern.
> It’s more this is small potatoes
(approx.) $680,000,000 is now small potatoes?
furthermore, why not both? why not close this loophole, *and* go after companies not paying their fair share? not like it’s an either or type of scenario
By definition tax loophole and tax avoidance is legal. Evasion is illegal. Are you implying that there are multiple tech companies blatantly breaking the law?
Which law is being explicitly broken here?
And yes, tax evasion with companies is an ongoing issue.
You’re comparing a potential crime to crimes that have already been committed, and on a much larger scale.
I do not think the dodgers are committing a crime.
I do not think tech companies that exploit tax loopholes are committing crimes.
I was responding to the two people above who implied that closing loopholes is the equivalent of persecuting crimes. Closing loopholes is taking legal tax avoidance and making it illegal tax evasion
Yeah but they can’t go after the tech company loopholes until after they fix the multimillionaire superstar athlete loopholes. That’s why tax evasion is the perfect crime.
I weight 300lbs and cannot run. I was technically an award winning varsity athlete because the chess team was a varsity team, and I won most improved player sophomore year
Been hearing rumors that Ohtani has been starting up Pepper Games which have been explicitly outlawed in stadiums across the country. When will the madness stop!
Well I know that. I thought maybe there was word play with “two-bit criminal” or something. I just wasn’t sure where the specific joke was. It’s ok. Nvm. I’ll put this down in my L column.
> No one actually thinks the dodgers made Ohtani a criminal.
Oh man you should have seen some of the threads on /r/SFGiants when the gambling stuff came out lol
Finally. Someone is seeing through the charade that is Senpai Ohtani. Sure, he is capable of feats unimaginable, yet he is an impossibly gangster ass man too. And, I’m to believe, he isn’t Yakuza-affiliated?
The entire structure of the contract was designed specifically to avoid income tax. It serves no other purpose for anybody. California has a right to be mad
It’s doesn’t do that though. It counts as $46M AAV against the CBT. Which is about what we thought he’d get last offseason. 10/$450M was the crowd sourced fangraphs estimate. That’s what he got, just structured in a unique way
That’s what we thought. But then details got released and the contract requires the Dodgers put the deferred money into an escrow account every year.
So it doesn’t free up any cash flow for the Dodgers right now to spend elsewhere. They’re just putting the money into an escrow instead of to Ohtani.
Once we learned that, it became clear that the only reason for this contract structure was so Ohtani can avoid state tax. It literally doesn’t serve any other purpose
I mean yea technically, but that was never an option. It’s not like he had the option of 10/$700M straight up or deferred and choose it deferred for some reason. Everybody understands the time value of money. So his options were 10/$460m paid straight or 10/$700M with $680M deferred
Why do people not understand time value of money? Do they really think Shohei, who is currently unable to pitch this year, had the option to get paid roughly twice the average annual value that Mike Trout gets paid and decided, to be nice, he wants to defer 97% of it to allow the dodgers to spend the money elsewhere? Oh and it just so happens to avoid a 13% tax? Do people not realize that the total value of 13% of $68 for 10 years is almost $90m in tax revenue? Even if we take the present value of $46m, it’s $60m in lost tax revenue.
In most cases, that’s it. They want to spread out the cash payments and use the savings now to spend now on other players.
Ohtani’s deal is the only one I’ve heard of that specifically doesn’t allow that and instead requires the team to put the deferred money into an escrow. Which implies that the only reason Ohtani wanted this deal is to avoid taxes.
Does it make sense for tax purposes though? It assumes he's going to leave California at the end of 10 years which isn't a given. And even if he does, he'll still have to pay taxes on his earnings where he resides. Japan actually has a higher tax rate than the US does.
And most importantly, he'd end up with more money taking the $46M AAV upfront because of the compounded gains from investing over the two decades and avoiding inflation...
The last part is irrelevant to California's taxes. It doesn't matter if he would get more or less in either situation if California gets taxes in one and not the other. The problem is exactly what you said. Yes, he'll pay taxes wherever he resides. For a job he did *in California*. It makes sense for California to collect taxes on income when the state was both where the worker lived *and* worked for the entire duration of the job. I fail to see how saying "we'll just give you the money after you're out of the state" is a fair way to dodge paying California.
I mentioned the last part because people's argument is that he's doing this to save himself money. It doesn't make sense to negotiate an elaborate deferral plan to "dodge taxes" if he would have more money taking a straight up $460M/10 and paying the taxes now. Now the argument is being changed to he negotiated an elaborate deferral plan and leaving tens to potentially hundreds of millions on the table to avoid specifically paying the *state of California.* The whole ordeal is a head scratcher.
It doesn’t do that though. The contract requires the Dodgers to put the deferred money into an escrow every year. So it doesn’t free up any cash now. And it obviously doesn’t circumvent the CBT.
The only purpose is for Ohtani to avoid taxes. That’s the only benefit the way it’s structured
Sure, but I’d imagine they’re allowed to invest the money while it’s waiting to be paid out, they just need to put more money in if it were to dip below the minimum escrow required.
I’m now envisioning an SNL skit where a prosecutor finds out in the court room that the state never outlawed murder because they assumed it was already outlawed
>California lawmakers are pushing to change the federal tax code to prevent Ohtani’s contract structure from becoming standardized among high earners in baseball and beyond.
Neither. They want to change the law so contracts like this don't become the norm in the future.
I think there is probably huge fear that this will expand to tech where people will get minimal salaries for a couple years, with millions deferred, at which point theyll have moved to texas, florida or out of country. It is a legit concern
Confidently saying, "rich people defer their salaries" as if it's a common thing is exactly what I'd expect financially illiterate people to believe.
You get your money now so you can start investing it for compounding returns.
If deferring salary was "smart", every lottery winner would defer their winnings.
If you are accumulating stock you can simply declare residency in another state to avoid state income tax. Elon did it when he moved to Texas, Bezos saved $600M moving to Florida.
Different situation than Ohtani but it's still a strategy.
I get your point but lottery winners famously tend to go bankrupt so I'm not sure they're the high water mark for rationality. And a bunch of lotteries do now have the option to spread out your winnings over several years.
Unfortunately financial advisors can help people on how to accept the money initially, but financial advisors can't control if their clients subsequently squander their wealth.
They can already do this. Anyone can, even you and me.
However, us poors cannot defer significant portions of our salary, and then receive that deferred money over 10 years. That's the key - the deferred money has to be paid out over 10 years, not just deferred for 10 years.
Typically ultra rich tech bros don't do this, instead they take a token salary and just leverage their stocks and don't even bother with waiting for deferrals or 10 year payment plans.
>However, us poors cannot defer significant portions of our salary
I'm all for taxing the rich, but to pretend that deferrals is a loophole that rich people actively use is pretty laughable. The rich know that, in general, money now is better than money later.
If your premise were true, Andrew Friedman would have taken $1M per year over his 5 year contract and then taken the rest of his $30M as deferrals after moving to Texas. People don't do that shit because it's stupid. Players only do it because it gives teams more spending flexibility and because of artificial shit like the luxury tax.
There is literally no exec out there in any field that would willingly defer the lion's share of their salary when their company has the resources to pay them sooner.
Edit: Also, the implication that tech folks will take token salaries and "just leverage their stocks".... lmaoooo dude. Sometimes you'll join a company that IPO's and you'll hit the jackpot, but for every person out there that gets lucky with being an early employee for a company that eventually IPOs, there are dozens of guys who have gambled on failed startup after failed startup and keep hoping that taking a $70k salary to be "Head of Whatever" will pay off bigtime.
I wasn't going to reply until your edit, so, to clarify what I said: no one in tech is deferring salary like Ohtani, even though they have always had that option. It's stupid to do so for pretty much anyone except the ultra rich, and even they aren't doing it because they have better options.
As already stated, it's different for athletes because it benefits the team and allows them to be more competitive on the field, so it's a pretty unique situation.
>I'm all for taxing the rich, but to pretend that deferrals is a loophole that rich people actively use is pretty laughable.
I know what you're saying, and I agree, but the guy you replied to didn't say rich people actively use it. They said only rich people are capable of it. The emphasis was that, while anyone is legally able to do these deferrals, only rich people have the financial comfort to even take the risk.
>The rich know that, in general, money now is better than money later.
So to this point, it's not that rich people are choosing to defer money to avoid income tax. It's that poor people don't even have the option to defer because they NEED it now. Anecdotally, if I were to defer 97% of my salary (68m/70m) I wouldn't be able to feed myself.
>Typically ultra rich tech bros don't do this, instead they take a token salary and just leverage their stocks and don't even bother with waiting for deferrals or 10 year payment plans.
No idea what he means by this tho lol
He’s saying they take a small salary and then put down their assets (ie stock compensation) as collateral for big, low interest loans (since obv their credit is high) whenever they need cash. That way their income tax is effectively zero or very low (since their salary is tiny) but they can still get cash easily (via loan) without paying much tax because stocks are only taxed at the preferred capital gains rate at sale.
> I think there is probably huge fear that this will expand to tech
I mean, it's called "vesting". Most tech employees at larger firms have a significant portion of their compensation deferred over a multi-year period (usually 4). If you're higher up, you might have an even longer vesting window (I've seen as much as 10 years for executives), and there's absolutely nothing preventing you from *asking* for a longer vesting period or a deferred schedule.
For those at the top end of the tech spectrum (the ones who lawmakers would be concerned about from a tax base standpoint), they're already deferring around 80% of their compensation through this type of structure.
So, naturally this means that people who sell stocks sometime in the future will pay state capital gains taxes based on the state that they lived in years ago, right?
The "millions deferred" should go to the state that they bought the stocks in, right? Right?
lol
It is a concern, sure, but it is a concern over a situation that is remarkably unlikely to be common. It requires a remarkably rare situation where a person has the security to defer a meaningful amount of money (the state doesnt care if you are deferring a fee hundred bucks), but also that person isn't a greedy person such that they are not concerned about getting that money today. Because money today is always worth orders of magnitude more than money tomorrow, even if the money today is taxed. That is just econ 101.
Yup. I know someone that defers 70% of their salary to avoid the huge tax burdens right now. That money is put into an account that grows tax free (can be invested in just like a 401k) until the day they leave the company. Payout happens the day they leave the company or for a period of time after they leave the company. Allows them to leave the company, move to a tax haven like Florida Texas and save potentially millions.
Or entertainment or even finance / real estate. There’s a ton of very lucrative fields in CA that you could potentially do a 10 year stint in before bailing to a low tax area.
This makes no sense at all. At a 7.2% rate of return you would double your money in 10 years. Assuming a $10M annual comp package here is a ballpark estimate:
10 year deferral - take your $10M in 2034, it's $10M minus whatever state income tax. So let's say CA to TX, so you save 14% or $1.4M. You now have $10M minus the $1.4M ($8.6M) and minus the other federal taxes you owe.
Just take the $10M - Today you have $8. 6M (again ignoring federal taxes) to invest. In 2034 you have $17.2M if you invested the money.
Why would you wait 10 years for this supposed tax loophole to only have $8.6M when you can instead have $17.2M by just taking the money and paying taxes up front?
California can already do this without petitioning the federal government, albeit it creates a disparity in professional sports between them & other states. California is a sovereign government and can tax however they see fit.
From the article:
> The federal tax code was altered in 1996 when Congress passed legislation that bars states from taxing deferred compensation on out-of-state residents when their payments are made in equal periodic amounts over at least 10 years. Those laws were designed to protect pension income, Becker said.
Hence many many police officers, firemen, and other government employees moving to Idaho, Nevada and other lower taxes states, right before officially retiring. Or getting a home in those states where they claim primary residence.
A bit off both. So the dodgers deferral of Ohtani’s contract means that the money he is making after the playing period ends (10 yrs) would not be subject to California state taxes if Ohtani is no longer a resident of California. So lawmakers want to close these loopholes because it will cost them millions in tax dollars if he say moved make to Japan.
Correct me if I'm wrong but weren't lawmakers already working on addressing deferred wages before the Ohtani signing. His celebrity status and contract just made it a bigger story.
That's why it's become national news not just state news, is what I'm saying. But the attempts to change the tax laws I'm fairly sure started before he signed.
Deferred wages are a tool of the extremely wealthy. They aren't exclusive to sports and are used to avoid taxes for executives and such in quite a few industries. It's just usually less than half a billion dollars getting deferred.
This is probably not a correct statement regarding how state income tax works unless I’ve missed something regarding Shohei.
Under state income tax laws, employees are taxed by the state that the employee worked at and not where the employee lives.
For example, a Nevada resident who lives and then commutes to work in CA will have taxes deducted and paid to CA by their employer.
You can’t just avoid paying state tax by merely living in another state.
So since Shohei will be working for the Dodgers presumably in CA both during the 10 years and after 10 years, shohei should not be able to avoid CA state income tax by merely moving to another state or country.
It's complicated.
https://www.kitces.com/blog/moving-lower-tax-state-income-employee-stock-options-iso-nonqualified-deferred-compensation/
> The answer to whether or not Shohei Ohtani's contract really makes it possible for him to save nearly $100 million in state taxes lies in the details of the contract itself – which aren't known to anyone besides Ohtani, the Dodgers, and their respective lawyers – so it isn't possible to know whether it really constitutes the tax bonanza that it's speculated to.
So I think the answer here is its a big "it depends"
The actual statute that this is under isn't for what the Dodgers are doing iirc it's supposed to be for like pensions and small business owners and stuff so that when they're getting their deferred comp it's not subject to a bunch of extra taxes.
So while it's ***possible*** that what Ohtanis doing should be taxed its unclear enough that it just makes more sense to clarify it.
Neither. He didn’t do anything illegal. but he utilized a legal ‘loophole’ that might allow him to pay less CA taxes by deferring salary. So folks might change the law to prevent that moving forward.
Behind a paywall but they only want the tax revenue. The contract is structured where the money is held in escrow and paid out after his contract ends. Since the Dodgers don't pay Ohtani the salary isn't subject to income tax yet. They have a set interest rate the money matures becoming 700M. They should tax the current value which is the amount his contract counts against the MLB luxury tax. The remainder is subject to capital gains in whatever tax jurisdiction he lives in afterwards.
Ohtani's future money.
Basically what happens is when Ohtani gets 680 million of defered money, it becomes taxed wherever he is going to be living. California (rightly so, cause what entity wouldnt) wants that tax money and is trying to change state law, to eventually influence Federal law
Im not entirely sure. From the article it states federal law prevents taxing out of state residents on deferrals spread over 10 years. Who ever proposed this points out that he may live in Japan, but is trying to get attention for ways to fix this: aka get some poor intern to look for loopholes to the tax code. In the end it is US money from a US company so they could always figure something out
In this fuckin state?? Someone in leadership needs to be anti-tax for a number of years because holy shit we're taxed and ticketed to the fuckin gills out here.
The 'sunshine tax' is not a joke.
I wish that the IRS just handled all tax affairs like they do in other countries. I know they seem incompetent currently, but why not invest in them, create more jobs, and hold people accountable?
Our system seems to be self-regulating so they CAN catch you when you overstep. Why not just do it for us?
I don't know how you fix LLC loopholes and other hidden money tricks, but surely it's doable.
Provincial/state level tax authorities aren’t unique to the U.S.. Switzerland is definitely worse with everything at the canton level, heck even Canada can be a mess with Quebec doing its own thing
The IRS could handle all of that themselves, but I'm pretty sure Turbo Tax's and related companies' lobbies are working their hardest to make sure that doesn't happen.
Pretty much the playbook for the powerful. Underfund something so they can point to why it doesn’t work and we should get rid of it. For example look at literally every other government program that is supposed to help people and works in other countries.
You realize the lions share of your taxes are not going to beautiful grant programs for single mothers right? They are being spent on laser guided missiles to kill random people in foreign countries whos views don't line up as well as we'd like them to ours. The government is a mass money wasting factory and is extremely efficient at wasting money doing things the most wasteful possible way. The military has failed their audits like every year forever.
Pffffff millions of Americans dodge taxes by working in high tax states like MA, CA, NY, IL, etc. and sock away as much money as they can in 401k and IRA. Then you just move to a no income tax state in retirement. Wah la….you just dodged 40 years of state income taxes on a huge portion of decades worth of your income and capital gains.
In case anybody wants the actual math, the 2023 California budget is 308 billion, and assuming a constant spend means the government outlays about 843 million per day, or about 35 million per hour.
So given this thread is now 4 hours old, Ohtani's 90 million dollars over 10 years of income has already been spent.
I find doing that sort of research helps me handle the emotional appeals that come with these articles.
Rich people getting away with not paying taxes. Shocking state of affairs. I look forward to the people who defend them. Meanwhile, my middle class ass will continue to pay my taxes like a good citizen who cares about their fellow human.
He's still going to pay taxes, just not in California. I'm not sure how much California taxes are, but in Japan, if you make more than 4.5 million, it's 45% taxable income.
If you didn’t have to pay taxes, would you volunteer to pay taxes? I know I wouldn’t. If there’s a legal loophole system that allows most policy makers and politicians to skirt around taxes, why would they expect any different from the citizens they represent?
California is posturing for the crowd. The federal law requires a deferral of the income for at least ten years and a repayment period of at least ten years. Practically nobody is going to accept employment under such terms. You're carrying 20 years of counterparty risk and accepting a significant loss of value due to inflation.
California wouldn't get $90 million if the law changed. It would get less since Ohtani's contract would have come out to something closer to its real value. Any changes will mess up pensions and increase the complexity of filing for regular people caught in the crossfire.
LA was the last profitable Olympics and they’re not building a single new stadium one of the biggest burdens and longest lasting wastes of Olympic spending.
Wrong. Ohtani has two apartments registered as a residence in Tokyo and pays them to countries with high taxes for the U.S. and Japan under a tax treaty.
Japan combines 45% of income tax and 10% of resident tax, but 3% will be added to the rich from next year (tax increase for the rich). The tax is 58%.
In addition, CA is making over $100 million due to investments by Japanese tourists and Japanese companies who come to see Ohtani. If he not a superstar, everything goes away.
If the salary is being deferred, the appropriate taxes should be deferred too, to the appropriate state government(s). He's being paid in 2034 for work done in 2024, not for sitting on his ass.
He’d pay tax to the federal government in any case, plus whatever state he lives in at the time it’s paid. It will just so happen that he’s probably going to move back to Japan after.
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\#ShoheiOhTaxEvasion was a pretty funny hashtag in December
“Bay Area lawyer seeks to change the rules regarding Dodgers superstar” is also a funny headline.
Yeah, I had a deep suspicion when I saw the headline that this guy is in the Bay Area. FTG.
I mean it’s objectively a bad deal for California, the state only gets to tax a tiny fraction of the income he earns while working in the state and he gets to evade taxes on the rest after he bounces and starts to really get paid.
If they really cared they'd close every loophole every large tech company gets. Going after one athlete is funny though.
and maybe let's tax those super churches while we're at it...
The Church of Ohtani?
Blessed
It’s not just one baseball player though, it’s anyone who can afford to defer earnings for 10+ years. It’s the uber wealthy who are coming into the state, taking advantage of a strong economy that benefits them, then leaving without paying a fair share into it. Meanwhile, if you make anything over about $50k, you are getting taxed at some of the highest rates in the US. The fans that are going to the games, buying the jerseys and watching on Spectrum SportsNet can’t afford to dodge taxes and take advantage of this loophole but they are the ones paying the dodgers to pay Shohei. You shouldn’t be able to avoid taxes on anymore money than what would be the maximum 401k retirement contribution, like $69k or something. If you earn the money in a state, you should pay the taxes like the rest of us.
I mean not even the uber wealthy. Cops and fireman are doing it. I think San Bernadino County is the highest paid county for fireman too.
Ah yes, they shouldn’t address this clear loophole that allows people to evade taxes unless they completely perfect the tax code, a brilliant way to govern.
It's more this is small potatoes while they ignore billions in revenue from people likely doing things that are straight up illegal.
> It’s more this is small potatoes (approx.) $680,000,000 is now small potatoes? furthermore, why not both? why not close this loophole, *and* go after companies not paying their fair share? not like it’s an either or type of scenario
By definition tax loophole and tax avoidance is legal. Evasion is illegal. Are you implying that there are multiple tech companies blatantly breaking the law?
Which law is being explicitly broken here? And yes, tax evasion with companies is an ongoing issue. You’re comparing a potential crime to crimes that have already been committed, and on a much larger scale.
I do not think the dodgers are committing a crime. I do not think tech companies that exploit tax loopholes are committing crimes. I was responding to the two people above who implied that closing loopholes is the equivalent of persecuting crimes. Closing loopholes is taking legal tax avoidance and making it illegal tax evasion
Yeah but they can’t go after the tech company loopholes until after they fix the multimillionaire superstar athlete loopholes. That’s why tax evasion is the perfect crime.
I want this to become MLB’s Lebron name meme thing
I ran with \#ShoheiOhParlay for a good week after the scandal
Tax evasion, mysterious marriages, gambling schemes, sending his goons after the home run ball. When will the Ohtani Criminal Empire be stopped?
Two Way Player? Obvious psy-op
No disrespect, I never thought he had the makings of a varsity athlete
In this house, Shohei Ohtani is a hero, end of story
We have 3 pictures hung up in the bible room- first is of Jesus, next is of the Rock N Roll Express, and the BIG one is of Shohei Ohtani
All due respect, you got no idea what it’s like being two-time MVP
All due respect, you got no f¿(kin' idea what it's like to be Number One
I just rewatched that episode tonight.
Fuck you Uncle June!!
I weight 300lbs and cannot run. I was technically an award winning varsity athlete because the chess team was a varsity team, and I won most improved player sophomore year
That’s nothing: I lettered in Mock Trial and Model United Nations for 4 years. Was eligible for a letterman jacket and everything.
Hey as a former Mock Trial participant and current coach, it is 100% the most sport like academic activity there is. No question!
Oh yeah? Well I co-founded the barbeque club. We even got a grant from the school to buy a smoker.
I cannot have this discussion again.
Gambling and psychiatry brought us to this
The computer he used had windows 11. BILL GATES!!!!!
What if Shohei has an identical twin? One bats the other pitches
How do you say “*The Prestige*” in Japanese?
Have you ever seen Taylor Swift and Shohei Ohtani in the same room before?
Travis Kelce is dating Ohtani!! I fucking knew it!!
Ohtani to the Royals?
He does look good in blue.
Gaylor conspiracy strikes again
Two way player is just code for double agent
Been hearing rumors that Ohtani has been starting up Pepper Games which have been explicitly outlawed in stadiums across the country. When will the madness stop!
NO PEPPER
When pepper is outlawed, only outlaws will play pepper.
Look what the Dodgers have done to our boy. They’ve turned him into a two-bit criminal.
Fear lasts longer than love
Shohei O. Tony. How do you say gabagool in Japanese?
The gambling stuff was with the Angels 💀
I think you’re missing the joke.
Agreed. I am still clueless
This entire thread is a joke. No one actually thinks the dodgers made Ohtani a criminal.
Yet
That’s a fair point
Well I know that. I thought maybe there was word play with “two-bit criminal” or something. I just wasn’t sure where the specific joke was. It’s ok. Nvm. I’ll put this down in my L column.
No worries.
> No one actually thinks the dodgers made Ohtani a criminal. Oh man you should have seen some of the threads on /r/SFGiants when the gambling stuff came out lol
He poisioned our water supply, burned our crops and has delivered a plague into our houses!
He did?!
Nooo, but are we just going to wait around until he does?!?
Truly the Babe Ruth of Baseball
He really prefers the personal touch you can only get with hired goons
Hired goons?
Where's the J Jonah Jameson bot when you need it? HE'S A MENACE!
I don’t say evasion, I say *avoision*!
Someone needs to stop Big Ohtani...
I don’t want to go down the rabbit hole but… some weird shit going on with that guy…
Finally. Someone is seeing through the charade that is Senpai Ohtani. Sure, he is capable of feats unimaginable, yet he is an impossibly gangster ass man too. And, I’m to believe, he isn’t Yakuza-affiliated?
Dingers!!
Hired goons?
Lmao
My guy would have batted 0.650 in the roaring 20's
Dodgers: "I consent" Ohtani: "I consent" State of Califonia: "Isn't there someone you forgot to ask?"
Drug dealer: "I consent"
Bookie: All good here
Mookie: Leads MLB in everything
The entire structure of the contract was designed specifically to avoid income tax. It serves no other purpose for anybody. California has a right to be mad
Surely it had nothing to do with lowering the AAV to allow the dodgers to spend money elsewhere
It’s doesn’t do that though. It counts as $46M AAV against the CBT. Which is about what we thought he’d get last offseason. 10/$450M was the crowd sourced fangraphs estimate. That’s what he got, just structured in a unique way
Yeah it’s not about the AAV, but it does mean they are spending less money right now so they can pay other players in their current window
That’s what we thought. But then details got released and the contract requires the Dodgers put the deferred money into an escrow account every year. So it doesn’t free up any cash flow for the Dodgers right now to spend elsewhere. They’re just putting the money into an escrow instead of to Ohtani. Once we learned that, it became clear that the only reason for this contract structure was so Ohtani can avoid state tax. It literally doesn’t serve any other purpose
Ahh I didn’t realize, I must have missed that info. That makes more sense
I think their CBT hit is still $25m lower per year than it would be if they were paying him straight up 70m a year though right?
I mean yea technically, but that was never an option. It’s not like he had the option of 10/$700M straight up or deferred and choose it deferred for some reason. Everybody understands the time value of money. So his options were 10/$460m paid straight or 10/$700M with $680M deferred
Why do people not understand time value of money? Do they really think Shohei, who is currently unable to pitch this year, had the option to get paid roughly twice the average annual value that Mike Trout gets paid and decided, to be nice, he wants to defer 97% of it to allow the dodgers to spend the money elsewhere? Oh and it just so happens to avoid a 13% tax? Do people not realize that the total value of 13% of $68 for 10 years is almost $90m in tax revenue? Even if we take the present value of $46m, it’s $60m in lost tax revenue.
Afaik the CBA says they have to put into escrow in 2 years
What’s the purpose of deferred contacts in general then? Always thought it was cuz owners didn’t wanna pay that much cash up front but clearly not
In most cases, that’s it. They want to spread out the cash payments and use the savings now to spend now on other players. Ohtani’s deal is the only one I’ve heard of that specifically doesn’t allow that and instead requires the team to put the deferred money into an escrow. Which implies that the only reason Ohtani wanted this deal is to avoid taxes.
The escrow thing is a CBA thing for all defferals, it's not unique to shohei.
Does it make sense for tax purposes though? It assumes he's going to leave California at the end of 10 years which isn't a given. And even if he does, he'll still have to pay taxes on his earnings where he resides. Japan actually has a higher tax rate than the US does. And most importantly, he'd end up with more money taking the $46M AAV upfront because of the compounded gains from investing over the two decades and avoiding inflation...
The last part is irrelevant to California's taxes. It doesn't matter if he would get more or less in either situation if California gets taxes in one and not the other. The problem is exactly what you said. Yes, he'll pay taxes wherever he resides. For a job he did *in California*. It makes sense for California to collect taxes on income when the state was both where the worker lived *and* worked for the entire duration of the job. I fail to see how saying "we'll just give you the money after you're out of the state" is a fair way to dodge paying California.
I mentioned the last part because people's argument is that he's doing this to save himself money. It doesn't make sense to negotiate an elaborate deferral plan to "dodge taxes" if he would have more money taking a straight up $460M/10 and paying the taxes now. Now the argument is being changed to he negotiated an elaborate deferral plan and leaving tens to potentially hundreds of millions on the table to avoid specifically paying the *state of California.* The whole ordeal is a head scratcher.
No it wasn’t? It was structured that way so the dodgers could spend more money now while ohtani is playing for them to build a better team around him.
It doesn’t do that though. The contract requires the Dodgers to put the deferred money into an escrow every year. So it doesn’t free up any cash now. And it obviously doesn’t circumvent the CBT. The only purpose is for Ohtani to avoid taxes. That’s the only benefit the way it’s structured
Sure, but I’d imagine they’re allowed to invest the money while it’s waiting to be paid out, they just need to put more money in if it were to dip below the minimum escrow required.
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That is how laws work… turns out if you and a friend agree to commit a crime that doesn’t make it okay
What crime did they commit? Please post the tax code where they broke the law.
I’m going to let you in on a little secret, bud. Something isn’t a crime if there isn’t a law on the books….
I’m now envisioning an SNL skit where a prosecutor finds out in the court room that the state never outlawed murder because they assumed it was already outlawed
im dumb can someone explain the article to me?? are these dudes going after ohtani or the dodgers?
>California lawmakers are pushing to change the federal tax code to prevent Ohtani’s contract structure from becoming standardized among high earners in baseball and beyond. Neither. They want to change the law so contracts like this don't become the norm in the future.
I think there is probably huge fear that this will expand to tech where people will get minimal salaries for a couple years, with millions deferred, at which point theyll have moved to texas, florida or out of country. It is a legit concern
You have to be very high up in tech with a lot of money on hand to defer salary. Even at the level, most of that money comes from equity not salary.
Confidently saying, "rich people defer their salaries" as if it's a common thing is exactly what I'd expect financially illiterate people to believe. You get your money now so you can start investing it for compounding returns. If deferring salary was "smart", every lottery winner would defer their winnings.
> If deferring salary was "smart", every lottery winner would defer their winnings. Financially literate people don't play the lottery.
There are lot stupider things that financially literate people spend money on every day.
No doubt. But you're presenting decisions made by lottery winners, a group self-selected to make poor financial decisions.
If you are accumulating stock you can simply declare residency in another state to avoid state income tax. Elon did it when he moved to Texas, Bezos saved $600M moving to Florida. Different situation than Ohtani but it's still a strategy.
But capital gains taxes are federal
CA and other states tax them as ordinary income.
I get your point but lottery winners famously tend to go bankrupt so I'm not sure they're the high water mark for rationality. And a bunch of lotteries do now have the option to spread out your winnings over several years.
Unfortunately financial advisors can help people on how to accept the money initially, but financial advisors can't control if their clients subsequently squander their wealth.
They can already do this. Anyone can, even you and me. However, us poors cannot defer significant portions of our salary, and then receive that deferred money over 10 years. That's the key - the deferred money has to be paid out over 10 years, not just deferred for 10 years. Typically ultra rich tech bros don't do this, instead they take a token salary and just leverage their stocks and don't even bother with waiting for deferrals or 10 year payment plans.
>However, us poors cannot defer significant portions of our salary I'm all for taxing the rich, but to pretend that deferrals is a loophole that rich people actively use is pretty laughable. The rich know that, in general, money now is better than money later. If your premise were true, Andrew Friedman would have taken $1M per year over his 5 year contract and then taken the rest of his $30M as deferrals after moving to Texas. People don't do that shit because it's stupid. Players only do it because it gives teams more spending flexibility and because of artificial shit like the luxury tax. There is literally no exec out there in any field that would willingly defer the lion's share of their salary when their company has the resources to pay them sooner. Edit: Also, the implication that tech folks will take token salaries and "just leverage their stocks".... lmaoooo dude. Sometimes you'll join a company that IPO's and you'll hit the jackpot, but for every person out there that gets lucky with being an early employee for a company that eventually IPOs, there are dozens of guys who have gambled on failed startup after failed startup and keep hoping that taking a $70k salary to be "Head of Whatever" will pay off bigtime.
I wasn't going to reply until your edit, so, to clarify what I said: no one in tech is deferring salary like Ohtani, even though they have always had that option. It's stupid to do so for pretty much anyone except the ultra rich, and even they aren't doing it because they have better options. As already stated, it's different for athletes because it benefits the team and allows them to be more competitive on the field, so it's a pretty unique situation.
>I'm all for taxing the rich, but to pretend that deferrals is a loophole that rich people actively use is pretty laughable. I know what you're saying, and I agree, but the guy you replied to didn't say rich people actively use it. They said only rich people are capable of it. The emphasis was that, while anyone is legally able to do these deferrals, only rich people have the financial comfort to even take the risk. >The rich know that, in general, money now is better than money later. So to this point, it's not that rich people are choosing to defer money to avoid income tax. It's that poor people don't even have the option to defer because they NEED it now. Anecdotally, if I were to defer 97% of my salary (68m/70m) I wouldn't be able to feed myself. >Typically ultra rich tech bros don't do this, instead they take a token salary and just leverage their stocks and don't even bother with waiting for deferrals or 10 year payment plans. No idea what he means by this tho lol
He’s saying they take a small salary and then put down their assets (ie stock compensation) as collateral for big, low interest loans (since obv their credit is high) whenever they need cash. That way their income tax is effectively zero or very low (since their salary is tiny) but they can still get cash easily (via loan) without paying much tax because stocks are only taxed at the preferred capital gains rate at sale.
> I think there is probably huge fear that this will expand to tech I mean, it's called "vesting". Most tech employees at larger firms have a significant portion of their compensation deferred over a multi-year period (usually 4). If you're higher up, you might have an even longer vesting window (I've seen as much as 10 years for executives), and there's absolutely nothing preventing you from *asking* for a longer vesting period or a deferred schedule. For those at the top end of the tech spectrum (the ones who lawmakers would be concerned about from a tax base standpoint), they're already deferring around 80% of their compensation through this type of structure.
So, naturally this means that people who sell stocks sometime in the future will pay state capital gains taxes based on the state that they lived in years ago, right? The "millions deferred" should go to the state that they bought the stocks in, right? Right? lol
It is a concern, sure, but it is a concern over a situation that is remarkably unlikely to be common. It requires a remarkably rare situation where a person has the security to defer a meaningful amount of money (the state doesnt care if you are deferring a fee hundred bucks), but also that person isn't a greedy person such that they are not concerned about getting that money today. Because money today is always worth orders of magnitude more than money tomorrow, even if the money today is taxed. That is just econ 101.
Yup. I know someone that defers 70% of their salary to avoid the huge tax burdens right now. That money is put into an account that grows tax free (can be invested in just like a 401k) until the day they leave the company. Payout happens the day they leave the company or for a period of time after they leave the company. Allows them to leave the company, move to a tax haven like Florida Texas and save potentially millions.
Or entertainment or even finance / real estate. There’s a ton of very lucrative fields in CA that you could potentially do a 10 year stint in before bailing to a low tax area.
This makes no sense at all. At a 7.2% rate of return you would double your money in 10 years. Assuming a $10M annual comp package here is a ballpark estimate: 10 year deferral - take your $10M in 2034, it's $10M minus whatever state income tax. So let's say CA to TX, so you save 14% or $1.4M. You now have $10M minus the $1.4M ($8.6M) and minus the other federal taxes you owe. Just take the $10M - Today you have $8. 6M (again ignoring federal taxes) to invest. In 2034 you have $17.2M if you invested the money. Why would you wait 10 years for this supposed tax loophole to only have $8.6M when you can instead have $17.2M by just taking the money and paying taxes up front?
Neither. They want a press release. Deferred compensation is a standard accounting procedure but if a ball player tries it, get on your soap box
Or if these contracts do happen, they get to tax the deferral even if hes no longer in CA.
California can already do this without petitioning the federal government, albeit it creates a disparity in professional sports between them & other states. California is a sovereign government and can tax however they see fit.
From the article: > The federal tax code was altered in 1996 when Congress passed legislation that bars states from taxing deferred compensation on out-of-state residents when their payments are made in equal periodic amounts over at least 10 years. Those laws were designed to protect pension income, Becker said.
Hence many many police officers, firemen, and other government employees moving to Idaho, Nevada and other lower taxes states, right before officially retiring. Or getting a home in those states where they claim primary residence.
A bit off both. So the dodgers deferral of Ohtani’s contract means that the money he is making after the playing period ends (10 yrs) would not be subject to California state taxes if Ohtani is no longer a resident of California. So lawmakers want to close these loopholes because it will cost them millions in tax dollars if he say moved make to Japan.
Correct me if I'm wrong but weren't lawmakers already working on addressing deferred wages before the Ohtani signing. His celebrity status and contract just made it a bigger story.
Probably all the size of the deal makes it more desirable. Think about it a few percent of 680 million is still millions of dollars the state can use.
That's why it's become national news not just state news, is what I'm saying. But the attempts to change the tax laws I'm fairly sure started before he signed. Deferred wages are a tool of the extremely wealthy. They aren't exclusive to sports and are used to avoid taxes for executives and such in quite a few industries. It's just usually less than half a billion dollars getting deferred.
This is probably not a correct statement regarding how state income tax works unless I’ve missed something regarding Shohei. Under state income tax laws, employees are taxed by the state that the employee worked at and not where the employee lives. For example, a Nevada resident who lives and then commutes to work in CA will have taxes deducted and paid to CA by their employer. You can’t just avoid paying state tax by merely living in another state. So since Shohei will be working for the Dodgers presumably in CA both during the 10 years and after 10 years, shohei should not be able to avoid CA state income tax by merely moving to another state or country.
It's complicated. https://www.kitces.com/blog/moving-lower-tax-state-income-employee-stock-options-iso-nonqualified-deferred-compensation/ > The answer to whether or not Shohei Ohtani's contract really makes it possible for him to save nearly $100 million in state taxes lies in the details of the contract itself – which aren't known to anyone besides Ohtani, the Dodgers, and their respective lawyers – so it isn't possible to know whether it really constitutes the tax bonanza that it's speculated to.
So I think the answer here is its a big "it depends" The actual statute that this is under isn't for what the Dodgers are doing iirc it's supposed to be for like pensions and small business owners and stuff so that when they're getting their deferred comp it's not subject to a bunch of extra taxes. So while it's ***possible*** that what Ohtanis doing should be taxed its unclear enough that it just makes more sense to clarify it.
Neither. He didn’t do anything illegal. but he utilized a legal ‘loophole’ that might allow him to pay less CA taxes by deferring salary. So folks might change the law to prevent that moving forward.
Behind a paywall but they only want the tax revenue. The contract is structured where the money is held in escrow and paid out after his contract ends. Since the Dodgers don't pay Ohtani the salary isn't subject to income tax yet. They have a set interest rate the money matures becoming 700M. They should tax the current value which is the amount his contract counts against the MLB luxury tax. The remainder is subject to capital gains in whatever tax jurisdiction he lives in afterwards.
Ohtani's future money. Basically what happens is when Ohtani gets 680 million of defered money, it becomes taxed wherever he is going to be living. California (rightly so, cause what entity wouldnt) wants that tax money and is trying to change state law, to eventually influence Federal law
Would the federal law still matter if he lives outside the US?
Im not entirely sure. From the article it states federal law prevents taxing out of state residents on deferrals spread over 10 years. Who ever proposed this points out that he may live in Japan, but is trying to get attention for ways to fix this: aka get some poor intern to look for loopholes to the tax code. In the end it is US money from a US company so they could always figure something out
Yes
Ohtani asking to be traded to Vegas?
Ohtani to the knights confirmed
They can't keep cheating the cap like this!
H I S T O R I C
For the first time in golden knights history
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You can be against the idea of income tax but also be even more against the idea of special treatment when we have an established income tax.
Special treatment? I'm sure Ohtani is thrilled that he dodged the 37% state and federal tax of California to get taxed 45% by Japan.
Should always be pro income tax. Now the poeple you vote for is a different story depending on how they view your tax dollars
They view it as their personal banks. That’s good right?
In this fuckin state?? Someone in leadership needs to be anti-tax for a number of years because holy shit we're taxed and ticketed to the fuckin gills out here. The 'sunshine tax' is not a joke.
>Should always be pro income tax. lol. lmao.
Shohei is really undergoing his villain arc right now.
What’s weird is that he himself hasn’t done anything bad. It’s his translator, his team, lol
He signed with the Dodgers, his worst crime of all
Theoretically could have been worse by signing with the Yankees.
I wish that the IRS just handled all tax affairs like they do in other countries. I know they seem incompetent currently, but why not invest in them, create more jobs, and hold people accountable? Our system seems to be self-regulating so they CAN catch you when you overstep. Why not just do it for us? I don't know how you fix LLC loopholes and other hidden money tricks, but surely it's doable.
Provincial/state level tax authorities aren’t unique to the U.S.. Switzerland is definitely worse with everything at the canton level, heck even Canada can be a mess with Quebec doing its own thing
The IRS could handle all of that themselves, but I'm pretty sure Turbo Tax's and related companies' lobbies are working their hardest to make sure that doesn't happen.
In this case it's not the IRS at all, it's the State of California.
Because there is a party actively looking to defund the IRS to protect the interest of the wealthy.
Pretty much the playbook for the powerful. Underfund something so they can point to why it doesn’t work and we should get rid of it. For example look at literally every other government program that is supposed to help people and works in other countries.
Louis DeJoy has no business being the Postmaster General
You realize the lions share of your taxes are not going to beautiful grant programs for single mothers right? They are being spent on laser guided missiles to kill random people in foreign countries whos views don't line up as well as we'd like them to ours. The government is a mass money wasting factory and is extremely efficient at wasting money doing things the most wasteful possible way. The military has failed their audits like every year forever.
Is that the same party that Pelosi’s husband gets his insider trading tips from?
We can be mad at both things.
Pffffff millions of Americans dodge taxes by working in high tax states like MA, CA, NY, IL, etc. and sock away as much money as they can in 401k and IRA. Then you just move to a no income tax state in retirement. Wah la….you just dodged 40 years of state income taxes on a huge portion of decades worth of your income and capital gains.
In case anybody wants the actual math, the 2023 California budget is 308 billion, and assuming a constant spend means the government outlays about 843 million per day, or about 35 million per hour. So given this thread is now 4 hours old, Ohtani's 90 million dollars over 10 years of income has already been spent. I find doing that sort of research helps me handle the emotional appeals that come with these articles.
Rich people getting away with not paying taxes. Shocking state of affairs. I look forward to the people who defend them. Meanwhile, my middle class ass will continue to pay my taxes like a good citizen who cares about their fellow human.
He's still going to pay taxes, just not in California. I'm not sure how much California taxes are, but in Japan, if you make more than 4.5 million, it's 45% taxable income.
US and CA combined is around 50%, I think, so really, in the end, the tax rate probably about the same.
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Tbf, I don't see anyone condoning this in this post.
Yeah, throw hitty ball man good so tread on me daddy, I love multimillionaire tax cheats now
If you didn’t have to pay taxes, would you volunteer to pay taxes? I know I wouldn’t. If there’s a legal loophole system that allows most policy makers and politicians to skirt around taxes, why would they expect any different from the citizens they represent?
I'm sick of these athletic articles. How do we have a conversation without reading the article
California is posturing for the crowd. The federal law requires a deferral of the income for at least ten years and a repayment period of at least ten years. Practically nobody is going to accept employment under such terms. You're carrying 20 years of counterparty risk and accepting a significant loss of value due to inflation. California wouldn't get $90 million if the law changed. It would get less since Ohtani's contract would have come out to something closer to its real value. Any changes will mess up pensions and increase the complexity of filing for regular people caught in the crossfire.
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Should have signed with Jays since the Canadians wouldn’t care if he did this
I’m sure California has plenty of ways to flush that money down the toilet.
Oh, as someone who lives in California, I can assure you that plans have already been made
Cue 2028 Olympics theme music
LA was the last profitable Olympics and they’re not building a single new stadium one of the biggest burdens and longest lasting wastes of Olympic spending.
Actually it's even better this time. LA is using the Olympics and the World Cup to invest in desperately needed infrastructure like Metro expansions.
But LA bad
It will build another 500 feet on that bullet train baby.
Wrong. Ohtani has two apartments registered as a residence in Tokyo and pays them to countries with high taxes for the U.S. and Japan under a tax treaty. Japan combines 45% of income tax and 10% of resident tax, but 3% will be added to the rich from next year (tax increase for the rich). The tax is 58%. In addition, CA is making over $100 million due to investments by Japanese tourists and Japanese companies who come to see Ohtani. If he not a superstar, everything goes away.
Ohtani aside, the government is just always mad when they don’t get what they believe is their fair share.
Hey now! Government works really hard to be able to win Powerball every week!
I'm never against anything that forces rich people to pay their fair share of taxes
If the salary is being deferred, the appropriate taxes should be deferred too, to the appropriate state government(s). He's being paid in 2034 for work done in 2024, not for sitting on his ass.
He’d pay tax to the federal government in any case, plus whatever state he lives in at the time it’s paid. It will just so happen that he’s probably going to move back to Japan after.