The Luxury Tax Dilemma
The new CBA implements a new financial threshold for teams to navigate around, a term Keith Smith of Spotrac has coined the “super tax”. For the 2023-24 season, the salary cap is projected at $134 million, while the luxury tax threshold is at $162 million. The first tax apron is set to be at $169 million, but the new implementation is a second tax apron threshold, which is set at a projected $179.5 million. Teams that go above this $179.5 million threshold become very restricted in terms of their ability to add talent via trade or free agency. Teams who exceed the second tax apron threshold (the super tax) are restricted from using their taxpayer mid-level exception, trade first round picks that are seven years away, and sign certain players on the buyout market.
Super tax teams also will also be restricted for salary matching purposes in trades, as they’ll only be able to take back 110% of their outgoing salary in a trade, while other teams have the advantage of taking back 125% of their outgoing salary. Finally, starting in the 2024 offseason, super tax teams essentially are prevented from aggregating multiple smaller player salaries for a player with a larger salary that makes more money than the aggregated salaries. Essentially, super tax teams are restricted from taking in more salary than they’re sending out. How this affects the Sixers will depend on whether James Harden re-signs or not.
The Sixers are projected to have $117.1 million on the books with seven players under contract. If we assume Danuel House and Montrezl Harrell pick up their player options, then the Sixers are at $124.1 million with nine guys under contract. If the Sixers are able to re-sign Harden to the maximum salary previously discussed, then they’re at $171 million in contracts, which is $2 million above the luxury tax apron. At this point, it’s virtually impossible for the Sixers to avoid the super tax threshold, especially if they re-sign any of Georges Niang, Jalen McDaniels, Shake Milton, or Paul Reed. As a result, all of the restrictions on super tax teams I just mentioned would likely apply to the Sixers, which would make roster management a lot more difficult.
Without being able to use a taxpayer mid-level exception, the Sixers would essentially be limited to only signing players on minimum contracts or re-signing their own free agents that they have bird rights or early bird rights on. Therefore, teams paying the super tax are about to take a massive hit in terms of depth and with the new rules, trading for upgrades is becoming a lot more difficult. Therefore, if James Harden is wearing a 76ers jersey on opening night in the 2023-24 season, the Sixers will have to play cap gymnastics to continue to field a title contender.