Major League Baseball (MLB) has a luxury tax called the "Competitive Balance Tax" (CBT). In place of a salary cap, the competitive balance tax regulates the total sum of money a given team can spend on their roster. Salary caps are common across professional sports leagues in the United States. Without these measures, teams would not be restricted on the amount of money spent on players' salaries. Therefore, teams with greater funding or revenue would possess a competitive advantage in their ability to attract top talent via higher salaries.
MLB first implemented the competitive balance tax in 1997 to reduce anti-competitive behavior in the league. The CBA sets the competitive balance tax thresholds for its duration. Unlike some other professional sports leagues, MLB allows teams to go over the threshold, however, doing so results in the team being charged a tax on all overages.
Currently, the luxury tax increases based on the number of consecutive seasons above the CBT threshold, however this was not always the case. If a club "dips below the luxury tax threshold for a season, the penalty level is reset."[1] In addition to the luxury tax, teams also must pay surcharges for exceeding certain thresholds starting with the 2016 CBA.
The primary goal of the CBT is to encourage a competitive balance amongst teams while allowing big spending on players. The CBT threshold/tax rates have undergone several changes since 1997.[2]
^"What is a Competitive Balance Tax? | Glossary". Major League Baseball. Retrieved 2021-10-23.
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