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The Luxury Tax In Professional Sports

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The Luxury Tax In Professional Sports
The luxury tax is a mechanism that helps to regulate and control a team spending. While it is commonly referred to as a luxury tax, the CBA simply calls it a tax or a team payment. In recognition of the limitations of the soft cap’s effectiveness, the NBA instituted the luxury tax starting from the 2001-2002 season, the beginning season of the analysis of this paper. The concept of the luxury tax came from the MLB, which doesn’t have a salary cap. When a team spends on payrolls above a certain threshold, it is subject to a luxury tax, and the income that the league receives from this tax is partly redistributed to nontax-paying teams. This should cause the high-spending teams to reduce their expenditures, not allowing them to outspend the low-spending
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