Ducking the luxury tax might extend the Sixers’ championship window

Compared to the Phoenix Suns, Dallas Mavericks and Los Angeles Lakers, the Sixers had a relatively quiet trade deadline. Flipping Matisse Thybulle and the Charlotte Hornets’ 2023 second-round pick for Jalen McDaniels, the New York Knicks’ 2024 second-round pick and the Portland Trail Blazers’ 2029 second-round pick wasn’t exactly the Ben Simmons-for-James Harden blockbuster they pulled off at least year’s deadline.

Between their lack of draft picks—the Hornets second-rounder was the only pick they were allowed to trade before 2029—and dearth of salary filler, a quiet deadline was to be expected. In fact, team president Daryl Morey had been telegraphing it in recent weeks.

The Thybulle-for-McDaniels swap accomplished another goal for the Sixers: pushing them roughly $1.27 million below the NBA’s $150.3 million luxury-tax threshold. Rather than owe a luxury-tax bill of $1.8 million, the Sixers are now in line to receive a projected $14.5 million disbursement from the nine taxpaying teams, per ESPN’s Bobby Marks.

The focus on ducking the tax seems to have irked some Sixers fans, especially with the team in the midst of a win-now window. While no one should care about the Sixers’ owners pocketing an extra $14.5 million this year, dipping below the tax line did have a far more important benefit.

Since the Sixers paid the tax in each of the past two seasons, they would have become subject to the more punitive repeater tax next year had they stayed above the tax line this season. That would have made it far more expensive—and perhaps unlikely—to retain some of the free agents whom the Sixers might lose this summer.

“I think as part of my job, I have to look at the bigger picture,” Morey told reporters on Feb. 10. “We have a lot of guys we’re gonna re-sign. The moves we did both improve the team and make it easier to keep this team together going forward.”

We’ll have a far better sense in July of exactly how much it helped the Sixers to push the repeater clock back a year. But it’s easy to hypothesize in the meantime.

The Sixers already have $117.1 million committed to Joel Embiid ($46.9 million), Tobias Harris ($39.3 million), P.J. Tucker ($11.0 million), De’Anthony Melton ($8.0 million), Furkan Korkmaz ($5.4 million), Tyrese Maxey ($4.3 million) and Jaden Springer ($2.2 million) next season. The 2023-24 salary cap is currently projected to come in at $134 million, while the luxury-tax threshold is projected to be $162 million.

James Harden will shape the direction of the Sixers’ offseason either way. He can (and likely will) become an unrestricted free agent by declining his $35.6 million option for the 2023-24 season.

Last offseason, Harden declined his $47.4 million player option and re-signed with the Sixers on a two-year, $68.6 million deal. That $14 million paycut gave them enough room under the luxury-tax apron to sign Tucker with the non-taxpayer mid-level exception and Danuel House Jr. with the bi-annual exception (although it later cost them two second-round picks for tampering).

Harden doesn’t seem likely to take another massive paycut this offseason, though. Reports have already trickled out about him “seriously considering” a return to the Houston Rockets in free agency, which could be interpreted as a warning shot to the Sixers’ front office if they attempt to lowball him. They’re likely going to soar over the tax line if they re-sign him, which would limit them to only the $7.0 million taxpayer mid-level exception in free agency.

In other words: Unlike last year, when there was a tangible roster-building benefit to Harden taking a paycut—giving the Sixers access to the non-taxpayer MLE and bi-annual exception—that won’t be the case this year. As such, there’s no reason for him to give the Sixers another discount unless he’s trying to help them trim their luxury-tax bill.

Like Embiid, Harden’s starting salary on a max contract this summer will be $46.9 million (if the cap does come in at $134 million). Even if the Sixers don’t give him a full max deal—let’s conservatively estimate his next contract starts at $40 million—they’d be up to $157.1 million for eight players. That would leave them less than $5 million under the luxury-tax line with seven roster spots left to fill.

If the Sixers rounded out the rest of their roster with veteran-minimum contracts (roughly $2 million each), they would be $9 million over the luxury-tax line. And again, that’s assuming Harden takes almost $7 million less than his max salary. If he refused to settle for anything less than a max—even on a shorter-term deal—the Sixers could be $15-16 million over the tax line before addressing any of their other free agents.

McDaniels, Georges Niang and Shake Milton are all set to become unrestricted free agents in July, while House and Montrezl Harrell can join them by declining their $4.3 million and $2.8 million player options, respectively. Meanwhile, Paul Reed will be a restricted free agent, which means the Sixers can match any offer sheet that he signs with another team.

Niang might be able to command most (or all?) of the $7.0 million taxpayer MLE from other suitors, while Milton and McDaniels will likely be looking for at least the bi-annual exception ($4.5 million). If the Sixers re-signed those three at those prices, they’d add $16 million to their books, which would push them north of $173 million (with Harden starting at $40 million) with five empty roster spots. Add four minimum contracts, and they’d be at more than $181 million, putting them $19 million over the luxury-tax threshold. (And again, these are conservative estimates.)

If the Sixers also used their own taxpayer mid-level exception to sign a free agent, that would push them to nearly $180.1 million in total salary with four roster spots to fill. Add three minimum deals, and they’d be at roughly $186 million, or $24 million over the tax line. They could opt to leave one roster spot open for part of the season to shave down their tax bill—minimum contracts prorate based on how much of the season is left—or split their taxpayer MLE between two players, but the bottom line is that they’re likely to be $20-plus million into tax territory next year if they bring back all of Harden, Milton, Niang and McDaniels.

Had the Sixers been subject to the repeater tax next season, being $20 million over the tax line would cost them $65 million, while being $25 million over would cost them $88.75 million. Now that they won’t be paying the repeater tax, being $20 million over the line would cost them only $45 million, while being $25 million over would cost $63.75 million. That’s a $20 million difference between the repeater and non-repeater bill if they’re $20 million over the tax threshold and a $25 million difference if they’re $25 million over.

You might not care about how much tax the Sixers owners have to pay. However, every team—even the Golden State Warriors—has a limit on how much it’s willing to spend between salary and tax. Some ostensible contenders, including the Memphis Grizzlies, Cleveland Cavaliers and Phoenix Suns, haven’t used the entirety of their respective mid-level exceptions this season either in fear of crossing into tax territory (Cleveland) or increasing their tax bill (Phoenix). The Warriors ($162 million), Los Angeles Clippers ($137.5 million) and Milwaukee Bucks ($75.6 million) are the only three teams this season in line to pay a tax bill north of $75 million.

Had the Sixers been subject to the repeater tax next year, being $20 million over the tax line would give them a higher tax bill than non-repeater teams that are $25 million over. That could be the difference between re-signing one of Niang, Milton or McDaniels or using the full taxpayer MLE to sign a free agent and round out the rotation.

If the Sixers’ owners don’t greenlight Morey and Co. to spend as much as needed to retain Harden, Niang, Milton and/or McDaniels in July, pushing back the clock on the repeater tax will be much ado about nothing. But if it’s the difference between retaining some of those players and/or using the taxpayer MLE and not doing so, the Thybulle-for-McDaniels swap could help the Sixers keep their title window cracked open for another year.

Unless otherwise noted, all stats via NBA.com, PBPStats, Cleaning the Glass or Basketball Reference. All salary information via Spotrac or RealGM.