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Looming tax increases could factor in baseball free agent negotiations

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Team executives and agents wandered into the Agave Sunset lounge at the resort where the general managers' meetings were held in Indian Wells, Calif. Four of the six flat-screen televisions were showing election coverage, with the other two turned to sports.

President Barack Obama's victory over Mitt Romney was of as much interest to baseball's money men as the game scores, given the millions of dollars routinely guaranteed in player contracts these days.

As free agents negotiate deals this off-season, tax policy is an area that comes up along with the usual issues. Some players are wrangling for as much money as they can get before the end of the year to avoid a take hike in 2013.

"Front-loading would make sense if at all possible as tax rates will definitely go up on January 1st on all high-income taxpayers," agent Greg Genske said in an email. "The only question is HOW MUCH will the rates increase????"

This much is known for now: Starting Jan. 1, there is an additional 0.9 per cent Medicare tax on wages above $200,000 for individuals and $250,000 for married couples filing jointly under the federal Affordable Care Act, a rise to 2.35 per cent.

In addition, the Bush tax cuts are scheduled to expire at the end of the year, which could raise the highest marginal federal tax rate from 35 per cent to 39.6 per cent — although a deal between Obama and Congress could change that.

Oakland Athletics general manager Billy Beane figures agents will be on top of the changes — but the results of negotiations about the so-called fiscal cliff are unpredictable.

"I think if you're hopping around the potential of tax reform, you're probably chasing your tail," Beane said. "If they can predict when something's going to happen, then they're much further ahead than the lawmakers."

With baseball contracts worth as much as $275 million (Alex Rodriguez) and the major league minimum $480,000, tax policy affects every player who spends most of the season in the big leagues.

All-Star shortstop Jose Reyes, who has a $10 million salary next year, was traded from the Miami Marlins to the Toronto Blue Jays. While Florida has no state income tax, Reyes remains a New York resident from his days with the Mets and had high taxes to begin with. Ontario's provincial tax rises to 11.16 per cent — on top of a Canadian federal level as high as 29 per cent.

Among states with big league teams, income tax rates go as high as 10.3 per cent in California and 8.82 per cent in New York. At the other end, Florida, Texas and Washington have no state income tax. The top rate in the District of Columbia is 8.95 per cent.

"I like ours; we're a no-tax state," Seattle Mariners general manager Jack Zdurienck said. "When we sit down with players, that's a huge benefit. I think any player out there that has an opportunity to play in a no-tax state gets benefits, enormous benefits. We hope that weighs in our favour."

According to an analysis done by a tax lawyer on the staff of agent Scott Boras, a player with a $10 million salary and average deductions who plays in Florida and is a resident of that state will see his taxes rise from $3.45 million this year to $4.09 million next year under current law. If traded to the Blue Jays, that player's 2013 tax would rise to $4.27 million. And if dealt to a California team, the tax would go up to $4.4 million.

By moving money from salary into signing bonuses, players can sometimes lower their state tax bills. Shifting money into December this year could reduce federal taxes.

"Tax measures are going to be discussed, but change most likely carries compromise on both sides," Boras said. "One thing is clear based on the nation's ballot totals: Many Americans are split on this subject."

In the end, most free agents choose teams based on where they want to play, not on lowering the tax cut on their income.

"It's a factor, maybe even a small factor," agent Craig Landis said. "If there's 50 variables, you can now make it a 51st. It's not usually going to be the drive, but it's something to consider."

And for teams, only the big spenders need worry.

Beane's Athletics, for instance, had the lowest payroll in the majors last season.

"It's probably not a situation I'll have to face in Oakland too much," he said.

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