As a Reds fan I tend to think in terms of the impact on small market teams. Limiting pre-arb to two years would make it less desirable to compete by developing talent. Further, it would limit the ability of small market teams to leverage low cost pre-arb years in executing extensions. I'd prefer raising the minimum salary instead.
To keep teams from playing around with service time, just let any part of a season before September 1 count as a full year.
Both of the above changes would hurt small market teams more than large ones. Thus, I would favor lowering the luxury tax threshold to even it out. The MLBPA may balk at this because it is usually the large market teams that offer the big, long term contracts.
The problem with the negotiations is that all teams are not equal. What is acceptable to a big market team may not be acceptable to a less well capitalized team. The Reds case is further complicated by multiple owners.
I think it is going to be a tough negotiation.