Earlier this offseason, Shohei Ohtani signed the largest contract in MLB history. The deal will pay the two-way star an incredible $700 million over ten seasons. To keep the Dodgers competitive and not hamstrung by such a massive deal, Ohtani suggested structuring the contract to pay him only $2 million each season, with $680 million deferred for the following ten years after the contract ends in 2033.
Ohtani could potentially move outside of California before he starts receiving those deferred payments. If that’s the case, he’d also avoid spending millions in taxes. California has the highest state income tax in the entire United States. Were Ohtani still living in California, he would owe 13.3% in state income taxes for most of the $68 million he’ll make every year from 2034 to 2043. If he weren’t, he could skip out on paying roughly $100 million to the state.
Naturally, California isn’t cool with that. California Controller Malia Cohen has asked Congress to step in and intervene.
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“The absence of reasonable caps on deferral for the wealthiest individuals exacerbates income inequality and hinders the fair distribution of taxes,” Cohen said in a statement. “I would urge Congress to take immediate and decisive action to rectify this imbalance.”
Cohen’s statement largely focused on how extremely wealthy people can take advantage of a loophole to defer money indefinitely. If Congress changes the law, Cohen believes it will create a better situation for all taxpayers while building a more stable economy.
With his $2 million salary for the upcoming season, Ohtani will owe $261,600 in state income tax. If no money were deferred at all (and the contract was a full $70 million per year for 10 years), he’d owe $10,024,000 each season. The difference amounts to $9.763 million per season, which is where the $98 million figure above comes from.
To be clear, Ohtani hasn’t expressed any intent to leave California as soon as the deal is done or indicated that he’d take advantage of this loophole. But the fact it’s even a possibility is alarming to the state — and it’s going to do anything it can to maximize the money it makes from Ohtani’s historic deal.
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