Yankees Pitcher To Lose Over Half of $155 Million Contract to Taxes

by Americans for Tax Reform  |  published on January 24, 2014

Tanaka
However sweet this $155 million dollar deal seems, the reality is that Tanaka will lose almost $90 million over the 7-year life of his contract with the Yankees

As reported by ESPN, the New York Yankees have signed Masahiro Tanaka to a 7-year contract worth $155 million, earning an estimated $22.1 million per year. According to ESPN, Tanaka’s contract is the largest ever for an international free agent and the fifth-largest deal for a pitcher. However sweet this $155 million dollar deal seems, the reality is that Tanaka will lose almost $90 million over the 7-year life of his contract with the Yankees.

In addition to the Yankees, Tanaka was also being courted by the Arizona Diamondbacks and the Chicago Cubs. Unlike New York City, the cities of Phoenix and Chicago do not impose a city income tax. Had Tanaka chosen a similar contract with the Diamondbacks or the Cubs, he would have saved almost $12 million over the life of his contract. Instead, Tanaka chose New York, where the state and local rates are some of the highest in the country. By choosing to sign with the Yankees, Tanaka automatically forfeited almost $12 million in taxes that would have been saved had he signed with the Cubs or Diamondbacks.

Tanaka will pay a combined marginal income tax rate of 56.1 percent – over half of his contract. For New York state and local taxes alone he will lose an estimated $2,811,257 a year. The combined marginal income tax rate Tanaka will pay is comprised of the federal, state and local tax rates, plus the Medicare payroll tax. The chart below shows Tanaka’s tax burdens as compared between the differing franchises.

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