Shohei Ohtani's $700M deal prompts California controller to call for caps on deferred taxes

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California Controller Malia M. Cohen is calling on the U.S. Congress to amend the tax code and impose caps on deferred payments following Shohei Ohtani's historic $700 million deal with the Los Angeles Dodgers.

Ohtani's contract structure: Ohtani's groundbreaking 10-year contract has him making $2 million per year until 2034, deferring $68 million of his $70 million annual salary. The baseball superstar will then make $68 million annually from 2034-43.

Potential tax savings: In a press statement released on Monday, the California Controller argues that if Ohtani relocates from California before receiving the $680 million in deferred payments, he could bypass the state's 13.3% income tax and 1.1% payroll tax for State Disability Insurance. The California Center for Jobs and the Economy estimates a potential tax saving of $98 million for Ohtani by deferring the income.

Call for reform: Cohen, who assumed the role of controller last year, stated that the current tax system's lack of reasonable caps on deferrals for high-income individuals contributes to “income inequality” and hinders “fair tax distribution.” She asserts that introducing limits on deductions and exemptions for high-income earners promotes social responsibility and contributes to a more just tax system.

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In a broader context: Experts suggested that lawmakers have not prioritized deferred income, focusing instead on unrealized gains and investment growth. Pundits, however, warn that limiting deferred income may put states in a disadvantageous position regarding revenue collection from high earners.

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