Congress should take “immediate and decisive action” to limit deferred income for higher incomes, according to California’s controller, who signed a $700 million contract with the Los Angeles Dodgers about a month ago.

With a 10-year deferral of $680 million, the record-breaking contract signed by the Japanese pitcher has sparked concerns regarding future state taxability, particularly in the event that Ohtani decides to leave California. The highest tax rate in California for 2024 is 14.4%, plus a 1.1% payroll levy.

“The current tax system allows for unlimited deferrals for those fortunate enough to be in the highest tax brackets, creating a significant imbalance in the tax structure,” California State Controller Malia Cohen said in a statement Monday regarding Ohtani’s contract.

“The fair distribution of taxes is hampered and income inequality is exacerbated by the lack of reasonable caps on deferral for the wealthiest individuals,” the speaker stated. “I would implore Congress to act decisively and quickly to correct this imbalance.”

An estimate from the California Center for Jobs and the Economy suggests that Ohtani might save $98 million over the course of his contract by deferring $68 million a year for ten years. The precise details of Ohtani’s contract are unknown, and the estimate is based on a number of assumptions.

Although the controller for California has called for limitations on deferred income, Steve Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center, suggests that this may not be the root of the issue.

“Essentially, this is a federal statute that was passed in 1995 by a Republican-controlled Congress to stop states from imposing taxes on pension income,” he stated. “Ohtani’s ability to leave California and return to Japan to avoid paying taxes is a problem.”

States are prohibited by this clause from taxing “retirement income” received by nonresidents, which includes deferred compensation.

Congress has not prioritized deferred income.

According to William McBride, vice president of federal tax policy at the Tax Foundation, lawmakers have prioritized areas like investment growth or so-called unrealized gains over deferred income, despite calls from some Democrats for more taxes on the wealthy.

According to him, “Deferred income runs throughout the tax code,” including CEO salaries and 401(k) income.

According to McBride, “the state would be in a worse position in terms of its capacity to collect revenue from these high earners and great athletes because they wouldn’t be there” if Congress passed restrictions on deferred income.