The Yankees should not feel beholden to the “Steve Cohen Tax”

The Yankees have committed $573.5 million in guaranteed contracts this winter. The job still feels unfinished.

Over the last month, Yankees discourse focused on how the front office would make improvements to an offense that was outclassed by the Astros in the ALCS, with many zeroing in on left field. However, in recent days the tenor of the conversation surrounding the Yankees has shifted to their fixation on avoiding the final Competitive Balance Tax threshold, or the “Steve Cohen Tax” as it has become colloquially known.

And even if you don’t believe Heyman (I wouldn’t blame you for that policy), the Yankees’ actions tell the same story. They managed to save a couple hundred thousand here and there by signing most of their arbitration-eligible players to contracts slightly below the industry expectation, and wouldn’t you know it, the payroll conveniently stands at $292.3 million per FanGraphs’ RosterResource, about as close as you can get to the final threshold without going over. So of course, even in an offseason when the Steinbrenner family committed a record-breaking outlay and projects to field the highest payroll in franchise history, a winter when the spending of the much-maligned owner is near-unimpeachable, we’re talking about the luxury tax.

As part of the new CBA, MLB instituted a fourth luxury tax threshold born out of the owners’ collective fear of then-new Mets owner Steve Cohen and his seemingly limitless capacity to increase payroll paired with an insatiable appetite to win. Teams that zoom past the base threshold by $60 million or more will pay a 60-percent surcharge on their overages. Therefore, every dollar above $293 million will be taxed at an 80-percent rate for first time-offenders, 90 percent for second-time offenders, and 110-percent for third-time and beyond.

As second-time offenders, New York would pay 90 cents on every dollar by which their payroll exceeds $293 million. No small amount to be sure; however, I feel the Cohen threshold gets blown out of proportion in the media. In the grand scheme of things, it’s not that much of a bump in tax rate a team would have paid under the old three-threshold system — getting taxed at a 90-percent rate on overages as opposed to a 75-percent rate is not an unreasonable increase.

What’s more, the Yankees would only be paying that 90-percent rate on the small amount by which they would surpass $293 million. To give an example, if the Yankees’ final payroll ends up at $303 million, they would pay a $9 million tax on that $10 million they exceed the final threshold vs. the $7.5 million they would have paid under the expired CBA, or a modest bump of just $1.5 million.

Of course, it’s easy for me to tell someone to pay a larger tax penalty from where I sit. However, I still urge the Yankees to not draw a hard line in the sand at the Steve Cohen Tax. They’ve already made such a significant investment this winter — they’re doing themselves a disservice leaving the job only partially finished.

As intrigued as I am by an expanded role for Oswaldo Cabrera, the team still needs a left fielder, and any acquisition would bring payroll above $293 million. It would also behoove the Yankees to leave themselves money for midseason acquisitions at the trade deadline. Both of these scenarios are impossible with ownership beholden to the Steve Cohen Tax.

As it stands, the Yankees are set to enter the 2023 season as the favorites in their division if not the entire American League. It’s a strong roster to be sure, but far from the strongest they could reasonably field. Hmmm, where have we heard that refrain before?

If the Yankees refuse to deviate from this apparent course of final tax threshold avoidance and still intend to supplement the roster externally, they will need to shed some money. Much has been made of Josh Donaldson and Aaron Hicks clogging up payroll with their contracts and lack of accompanying on-field value, while Gleyber Torres and Isiah Kiner-Falefa stand out as perhaps two of the easier contracts to move.

Or they could just swallow the pill, eat the Steve Cohen Tax this year, and duck back below it with less than $200 million in guaranteed contracts for 2024. That feels a lot easier to this fan.