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Examining the issues in MLB standoff: Competitive balance tax

The competitive balance tax is a tool designed to allow smaller-market teams — such as the Royals and Athletics — to compete on a level equal to that of large-market teams.Jamie Squire/Getty

Third in a series examining the key issues in baseball’s CBA negotiations.

There is no salary cap in Major League Baseball.

But the closest thing to it, the competitive balance tax — which requires teams to pay financial and non-financial penalties for surpassing payroll thresholds — has turned into a sticking point that will require more compromise.

The last collective bargaining agreement featured a base level of team payroll limits starting at $195 million in year one of the deal, followed by gradual increases maxing at $210 million last year. If a team exceeded those figures, a tax on the difference between the actual payroll and the payroll threshold was imposed at a rate of 20, 30, and 50 percent, depending on how many times the threshold was cleared.

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In addition, there were two separate surcharge thresholds — the first ranging between $215 million and $230 million, the second between $235 million and $250 million in payroll — where payroll-poppers were taxed at rates ranging between 32 and 95 percent.

Surcharge offenders also faced a significant drop in the draft order.

This offseason, Major League Baseball faces significant questions when it comes to the future of the game.Tom Szczerbowski/Photographer: Tom Szczerbowski/G

This setup, also called the “luxury tax,” began in 1997, implemented in an attempt to even the spending abilities of large- and small-market teams — hence the “competitive balance” moniker.

Instead of balance, the union sees a faux salary cap, the scales weighted to punish teams willing to spend what it takes to build a winning roster.

Though the CBT is baked into the next CBA, the union wants to raise all the thresholds. According to the Associated Press, the union initially asked for the threshold in the first year to be set at $245 million.

The union has not asked for changes to teams’ financial penalties, but wants the non-financial ones, such as the draft drop, eliminated.

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One of MLB’s responses in the summer to the union’s desire to change the CBT was a creative first-ever $100 million payroll “floor,” or minimum, for every team to meet. The creativity, however, was seen by the players as two-faced, since the floor would be joined by a new first threshold of $180 million — a 14 percent decrease from $210 million — and a new first tax rate of 25 percent — a 25 percent increase from 20 percent.

The players rejected it.

The owners have proposed threshold increases — starting at $214 million and growing to $240 million, according to multiple reports — as well as an increase in penalties.

In Dallas last week, the players moved downward from their initial threshold proposals.

Depending on the choice and sensitivity of the measuring device used, each side can point to a degree of concession on CBT thresholds. That points to the still-murky appearance that finding a middle ground on the CBT front could pose a lower hurdle to clear than issues such as reducing service time, minimizing service-time manipulation, decreasing revenue sharing, and incentivizing winning.

Examining the issues in the MLB standoff

Part 1: Preserving competitive integrity

Part 2: Compensating younger players


Michael Silverman can be reached at michael.silverman@globe.com. Follow him on Twitter: @MikeSilvermanBB.