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Chicago Bulls Offseason Questions: The Luxury Tax, and the Bulls future with it

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Our latest in a series about the Bulls upcoming offseason is about the luxury tax. Mortal enemy of the Chicago Bulls, as well as an enemy of BaB readers sick of me harping on it for the past...oh man, I've been doing this too long.

But it's somewhat timely as Bulls GM Gar Forman was asked about it Wednesday morning on The Score, specifically referencing Bulls chairman Jerry Reinsdorf's stance that it'd be paid for a winner and how that mindset may have changed in light of Derrick Rose's lengthy absence next season.

What Jerry has said is "if we're in a position to compete, that we would consider going into the tax". Obviously we've been in a position to compete the last couple of years. Then when I talk about our long-term window, we feel we're going to be in a position to compete. I'm really confident that we will go into the tax if it makes basketball sense, as far as our long-term vision with this team. If it does, I think we'll go into the tax. I don't think we'll go into the tax for a short-term plug-in. But we're going to protect our assets, we're going to continue to build this thing for the next 5-7, 10 years built around Derrick and some of our young pieces.

Gar's correct that his boss has been lukewarm on the issue, and he follows suit here. But why (still) so scared?

The Luxury Tax is a team salary level set in the CBA based off of BRI, and assessed at the end of the regular season. Teams above it pay into a pool that goes to teams below it. It's been implemented as a deterrent for high-spending teams since the '99 lockout, with the tax payment being a dollar for every dollar spent over that level. In the time since the tax was instituted, The Bulls have never been above that level once.

But they're potentially close to doing so. As we went over when discussing the Bulls guaranteed salaries, the Bulls have over $63m in committed money for 7 players. The luxury tax level this season will be no less than $70.3m.

But while Gar tepidly insinuates they're in the position to pay the tax, specifically as a way to protect their assets (you'd think matching Omer Asik is one, and it's referenced specifically in the interview as very likely), it'll be even a harder decision than before. Actually, it was a pretty easy decision to do so before, leveraging their nearly unrivaled profits into taking advantage of a cost-cutting team, especially while their own stars were in their rookie contracts...but I digress...the tax is both tougher and more restrictive now. Even the Lakers and Mavericks are scared of it, so imagine how the mid-market* Chicago Bulls feel.

It's now worse for the tax-paying teams than in the previous CBA in three ways:

  1. The penalty is higher
  2. There's an extra penalty for staying in the tax multiple years
  3. You lose ways to acquire players

All the money rules for item #1 are here. To start, you can see it's now a $1.5tax/$1over as opposed to the old 1/1, and it gets worse the higher you go.

If you think this is a drastic change, the Players and Owners agreed with you, so these penalties are phased in starting next season. And that's nice, but item #2 (repeater rate) has been tossed around as reason the Bulls may avoid the tax this season anyway.

For 2014-15 teams pay the repeater rate if they also were taxpayers in all of the previous three seasons. For 2015-16 and all subsequent seasons, teams pay the repeater rate if they were taxpayers in at least three of the four previous seasons.

So, it's out there, but it also seems to be an incredibly unlikely scenario. The Bulls kept their spectacular streak alive this season of not paying the tax. Even if they crept into it for 2012-13, they'd have to do so again for the following 2 seasons to begin to risk that repeater tax after 2015-16 campaign. Keep in mind that Luol Deng's contract is off the books after 13-14, and they can wipe Carlos Boozer off of their taxed amount in any offseason via the amnesty clause.

The specific restrictions referenced in item #3 will be gone over in more detail in a separate post about cap exceptions. In short: lose the Bi-Annual Exception, reduce the MLE, reduce salary added in trades (and no acquiring sign/trades starting 2013-14).

So, it's indeed true that in a cruelly coincidental twist of fate*, just when the Bulls were needing to potentially go into the luxury tax for the first time ever; the new CBA has not only increased the monetary penalties for being a tax-paying team, they've reduced that team's flexibility. And we know the Bulls really like that word.


2012-13 Guaranteed Salaries, Team Options, Restricted Free Agents
Omer Asik, restricted free agency, and the Gilbert Arenas provision