MLB’s Prince Fielder Gets All-Star Tax Rate with Trade to Rangers

In a blockbuster move, the Detroit Tigers traded first baseman Prince Fielder to the Texas Rangers. In return, the Rangers agreed to send three-time All-Star Ian Kinsler to the Motor City. While both players will fill holes at batting and second base on perennial playoff-contending teams, Fielder will benefit the most from this trade despite having his contract restructured for $30 million less.

Yes, you read that correctly.

Despite having the remainder of his contract ($168 million over 7 years) restructured by the Rangers to now be $138 million over 7 years, Fielder’s after-tax earnings per season will decrease only slightly. Depending on whether the MLB slugger was a resident of Detroit, he will either earn $730,000 or $1.01 million less per season under the new contract.

So how is it that a baseball player can take a pay cut of $30 million and have it result in an actual loss of just $1 million?

Simple. Texas has no state income tax, which means Fielder won’t be forced to turn over any portion of his earnings to the state. Unfortunately, he will still be on the hook for the punitive federal income tax rate of 39.6 percent, plus the 3.8 percent Medicare surtax as seen below:

For illustrative purposes the total tax burden is based on the top marginal income tax rate of 39.6%, 3.8% Medicare surtax, Michigan state income tax rate of 4.25%, and Detroit’s resident and non-resident income tax rates of 2.4% and 1.2%, respectively.

While a hefty pay cut results in a decrease in earning potential regardless of relocation, Ian Kinsler – the other player involved in the trade – will continue to earn $60 million over the 4 remaining years in his current deal, but will see his total tax burden and liability increase. As a non-resident of Detroit, the newest addition to the Tigers’ roster can expect a total tax liability of $7.35 million and a total tax burden of 48.85 percent – a loss of earnings that Kinsler will be hard-pressed to earn back while playing in the struggling metropolis.

Baseball fans will argue which team got the better end of the trade based on future performance and statistics. Fielder and Kinsler would have to agree that, in terms of economics and after-tax earning potential, Fielder received the better deal between the two.