When two-way superstar Shohei Ohtani signed a record $700 million free-agent contract with the Los Angeles Dodgers earlier this offseason, the leading subplot quickly became the unprecedented deferrals involved -- just $2 million per year would be paid in the standard manner while the remaining $68 million would come due far into the future after the contract expires in 2033. The obvious implications were how it helped the Dodgers' payroll situation and allowed them to better negotiate MLB's luxury tax thresholds.
However, there's another consideration, one that also has something to do with taxes. As Bill Shaikin of the Los Angeles Times writes, California stands to miss out on a great deal of tax revenue from Ohtani's contract should he move out of the state after the contract is up in 2033 with the vast majority of payouts still to come. According to the California Center for Jobs and the Economy, the tax hit for California would amount to $98 million.
Regarding that possibility, California state controller Malia Cohen released a statement on Monday in which she called on Congress to address this and similar situations. Via the Times, Cohen's statement reads:
"The current tax system allows for unlimited deferrals for those fortunate enough to be in the highest tax brackets, creating a significant imbalance in the tax structure. The absence of reasonable caps on deferral for the wealthiest individuals exacerbates income inequality and hinders the fair distribution of taxes. I would urge Congress to take immediate and decisive action to rectify this imbalance.
"Introducing limits on deductions and exemptions for high-income earners promotes social responsibility and contributes to a tax system that is just and beneficial for all. This action would not only create a more equitable tax system, but also generate additional revenue that can be directed towards addressing pressing important social issues and fostering economic stability."
It's not yet clear whether Cohen's call for congressional intervention will gain any traction or, even if it does, whether it would alter Ohtani's future tax status.
