Zach Lowe of SI.com has the scoop on how the league's luxury tax proposal, presented in the most recent set of NBA lockout talks, would have worked. The players' union rejected the proposal as a de facto hard salary cap, which the owners have previously taken off the table.
Lowe reports that the tax would have come in at 175 percent for payroll in excess of the threshold, which would be set at a place similar to what it was last season ($70 million, or $11 million higher than the soft cap). For every $5 million over the threshold teams went, the penalty for that excess would raise another 50 cents on every dollar. So if the threshold was set at $70 million and a team amassed $80 million in salary, the luxury tax bill would be $20 million ($5 million taxed at 175 percent, $5 million taxed at 225 percent). This would go on as high as it needed to. Lowe calculates that under this system, the L.A. Lakers would have paid $53 million in luxury tax last season as opposed to the $23 million they actually put out.
Under the proposed system, teams like the Lakers would certainly be less willing to use items like the mid-level exception and veteran's minimum on players that get the team into these higher tax brackets. It would certainly serve its purpose to shrink the payroll gap, which may not help competitive balance but can't hurt.