Ohtani Contract Fallout: California Official Asks For Caps On Deferred Taxes After $700 Million Deal

Topline California Controller Malia M. Cohen is pushing for Congress to institute a cap on deferred tax payments, citing in a statement Shohei Ohtani’s $700 million, 10 year contract—a record breaking deal containing $680 million in deferred payments that will be paid out in 2034 and allow the Los Angeles Dodger to potentially avoid California’s income tax if he moves away from the state before he receives the money.

Ohtani signed to the Dodgers in December. (AP Photo/Ashley Landis) Key Facts Ohtani, who secured the largest contract in sports history less than a month ago, will be paid $2 million a year until 2034—when the Dodgers will pay him a total of $680 million in the following nine years. Cohen said Ohtani, 29, could defer the $680 million until the end of his 10 year deal and “potentially return to Japan and escape payment of California state income taxes on the deferred amount.” If Ohtani is no longer a California resident by the time his earnings are realized, the star player could avoid the state’s top income tax rate and its payroll tax for State Disability Insurance, which is 13.4% and 1.1% respectively, NBC News reported.

The California Center For Jobs & The Economy reported Ohtani could potentially save himself $98 million in state income taxes by deferring the income. Cohen argued the current tax system allows those in the highest tax brackets to use unlimited deferrals and that an absence of deferral caps “exacerbates income inequality and hinders the fair distribution of taxes.” Tangent In simple terms, deferred income tax is a tax that is required to be paid in the future as opposed to yearly payments.

Although taxing the wealthy has been a priority for Democrats, Congress has largely remained unconcerned with deferred income taxes, electing to focus on financial policies around unrealized gains and investment growth, according to NBC News , which cited William McBride, vice president of federal tax policy at the Tax Foundation.

Key Background Ohtani is considered one of the greatest baseball players of all time and joined Major League Baseball in 2018 with the Los Angeles Angels, earning $42.3 million per year. The star player is a dual threat, boasting record breaking stats as both a hitter and pitcher—a feat unheard of in modern baseball.

Last season, he became the first MLB player to hit at least 40 home runs and record 10 wins as a pitcher, also managing to be crowned the American League’s most valuable player for the second time in his career despite multiple injuries. Ohtani is the first Japanese player to have the most popular jersey in the MLB and made approximately $40 million in endorsement deals last season, the Los Angeles Times reported.

Surprising Fact Ohtani’s $700 million contract exceeds massive deals secured by athletes like Kansas City Chiefs quarterback Patrick Mahomes ($450 million), Los Angeles Angels center fielder Mike Trout ($426 million) and Dodgers outfielder Mookie Betts ($365 million). Portuguese soccer star Cristiano Ronaldo has the largest contract highest paid athlete in the world behind Ohtani, playing on a $536 million deal with Saudi Arabian professional football team Al Nassr FC.

Further Reading How Shohei Ohtani’s $680 Million Contract Deferral Benefits The Player And His Team (Forbes) Shohei Ohtani’s Dodgers deal prompts California controller to ask Congress to cap deferred payments (AP).