The California State Senate has approved a joint resolution that would urge Congress to curtail deferred compensation agreements in light of Shohei Ohtani’s contract with the Los Angeles Dodgers.
The Senate passed S.J.R. 14 April 15 on a 32–6 vote. It now goes to the State Assembly for consideration.
Sen. Josh Becker (D), who introduced the bill, said at an April 15 hearing that the resolution “will urge Congress to establish a reasonable cap on deferred compensation.” He singled out Ohtani’s deal with the Dodgers as the catalyst for the proposal.
“In December, Los Angeles Dodgers baseball team signed a 10-year, $700 million contract with pitcher and hitter Shohei Ohtani. That current contract is structured so Ohtani will defer $68 million annually, only receiving $2 million per year for 10 years,” Becker explained. Ohtani will thus potentially avoid "$90 million in state taxes if he were to reside outside of California when that deferred compensation is paid,” he added.
Ohtani’s contract generated controversy when it was announced. In response, State Controller Malia M. Cohen (D) issued a statement in January urging Congress to consider reforms to the rules for deferred compensation. Becker said he worked with Cohen in developing the resolution and noted that while Ohtani’s contract was the genesis for the proposal, the ballplayer could simply be the first of many to use the loophole.
“This is not about one player. It’s about [setting] a precedent that allows high-income earners to start paying their fair share,” Becker said, adding that “deferred compensation was meant for small amounts of income, for pension income” and that originally there was going to be a cap.
“In the absence of a cap, deferring compensation creates an unbalanced tax structure, and ultimately it furthers income inequality,” he said.
Sen. Steve Glazer (D) also spoke in favor of S.J.R. 14, noting that it could benefit other states where athletes play, since they must pay taxes to those states for the income earned during the time they spent working in those jurisdictions. Glazer chairs the chamber's Revenue and Taxation Committee, which approved the resolution 6 to 1 on April 10.
Sen. Kelly Seyarto (R), however, argued at the hearing that California’s tax code is the real problem and urged the Senate not to pass the resolution.
“The reason that a ballplayer such as Mr. Ohtani would defer all of this is because it costs so dang much, and our taxes are so high, that they have to come up with creative means of doing their salary,” Seyarto said, adding that Ohtani would be paying income taxes on all of his endorsements.
Seyarto said lawmakers should make California’s tax code more competitive with lower-tax states. He also warned that seeking to raise taxes on athletes could drive talented players to teams in other states. “What we really should consider is why people would have to go through all of these creative means to protect some of the money that they make," Seyarto said.
Becker countered Seyarto’s comments, arguing that the resolution is “really about fairness and making sure that ballplayers, but also corporate executives,” don’t abuse deferred compensation. “It’s important that we nip this in the bud,” he added.