Making Olympic winnings tax-exempt is a terrible idea

Updated
By The Cycle Staff
Ben Adler
by Ben Adler

COMMENTARY

Last week Sen. Marco Rubio, a Florida Republican and Tea Party favorite, introduced a bill that would let Olympic medal winners avoid paying taxes on the cash prizes they receive from the U.S. Olympic Committee, which range from $10,000 for each bronze medal to $25,000 for each gold. Then on Monday, President Obama’s spokesman Jay Carney said in a press conference that Obama supports the bill and would sign it if it reaches his desk. 

Some people might reason that we’re not talking about a significant hit to the Treasury, so there’s no real harm. And yet, the episode represents a perfect encapsulation of everything that’s wrong with our tax code—and it says something very depressing about our politics and about the prospects for sensible tax reform.

To explain: 

For the last few years one of the only things Republicans and Democrats have agreed about is that our tax code is inefficient. Our income tax codes for corporations and individuals are riddled with loopholes that are designed to reward a popular or powerful constituency. Whether it’s homeowners and their mortgage interest deduction or oil companies and their incentives for drilling, the tax code is needlessly complex, distorting the free market and creating inefficiencies. Every high-minded proposal for a bipartisan deficit reduction agreement has recommended eliminating many of these loopholes and using the revenue generated to both increase revenues and lower rates. 

And make no mistake, these loopholes aren’t tax cuts, they’re spending. You could achieve the exact same effect, and make things a lot more transparent, by eliminating the loophole and simply writing a check from the Treasury to the individual for the same amount. In other words, these programs don’t represent limited government, a cherished conservative goal. And since they disproportionately benefit the wealthy, they certainly don’t make things any fairer, as progressives seek to do.

So why can’t Washington agree to get rid of them? In large part, because Republicans stubbornly demand that the savings achieved go entirely to lower rates and not at all to increasing revenues in order to cut the deficit.

But another reason is that politicians don’t actually seem to want to get rid of them. Sure, in general they all say they want to. President Obama talks about it. Mitt Romney and Rep. Paul Ryan (R-WI) have made eliminating unspecified tax deductions the magic wand with which they claim they can lower rates without adding to the deficit. But there’s a reason they avoid specifying which deductions they would take away: Because those deductions either sound good to voters in the abstract, or are prized by powerful constituencies. After all, who wants to stand against home ownership, or needlessly alienate the oil industry?

And that’s how we get to the Olympics: By the same token, who wants to stand against Olympic athletes?

Rubio justifies the special treatment by arguing that Olympic athletes are performing a special patriotic duty. But soldiers, private military contractors, and law enforcement agents are all performing patriotic duties too—many at far greater personal risk—and they don’t get a tax break on their income. How about teachers and firefighters? And why does an athlete who won a medal get to avoid taxes on her winnings, but an athlete who comes in fourth and has to take a job upon returning have to pay taxes on her earnings? Is she less patriotic because she ran 1/10 of a second more slowly?

Moreover, as Alex Seitz-Wald explains in Salon, the whole argument is based on false assumptions about how much Olympic athletes pay in taxes. Rubio was inspired by a report from Americans for Tax Reform—the relentless anti-tax lobby led by Grover Norquist—which asserted, incorrectly, that Olympians are taxed on the value of their medals and that they are all taxed in the highest income bracket, 35 percent. And as Politifact noted, athletes can already deduct expenses for travel, equipment, training and so forth from their prize money, thus reducing their tax liability. 

Finally, Rubio’s bill could also eliminate taxation on endorsement contracts that are tied to winning medals. So the biggest beneficiary will likely be Michael Phelps, who is already fabulously wealthy, will make a cool $130,000 in awards and possibly millions more in endorsements. Talk about regressive.

Normally bipartisan cooperation on almost anything raises hopes that President Obama and congressional Republicans will be able to come together and pass a comprehensive, much-needed, tax reform. This, however, is a sign of the opposite. 

 

Ben Adler is a contributing writer for The Nation and federal policy correspondent for Next American City.

 

Marco Rubio, Olympics, Sports and Barack Obama

Making Olympic winnings tax-exempt is a terrible idea

Updated