Tax-Free Olympic Boodle is Gold Medal Stupidity

By :: August 7th, 2012

President Obama and conservative GOP senator Marco Rubio (R-FL) agree: Olympic medals and the cash awards that go with them should be tax-exempt. This is the dumbest idea of the summer—and in our overheated campaign season, that’s saying something.

The idea seems to have originated with anti-tax advocate Grover Norquist. Rubio instantly turned Norquist’s press release into a bill. By yesterday, Obama had his spokesman join in the pandering, perhaps hoping that a bit of the game's nationalistic enthusiasm would rub off of his presidential campaign.

What’s going on here? U.S. athletes who win their competitions get two forms of direct compensation. First, of course, is their medal—gold, silver, or bronze. The commodity value of the hardware is very modest, ranging from perhaps $700 for gold to about $5 for bronze. Second, the U.S. Olympic Committee (not the U.S. government) pays a cash bonus of $25,000 for gold, $15,000 for silver, and $10,000 for bronze. Those winnings are taxable just like any other income. The Rubio bill would make them tax-exempt. If you want to know more, PolitiFact has a nice, more detailed description.

I suspect much of the support for this silly idea is based on the mostly-outdated myth of the self-sacrificing amateur athlete who gives up all in the Olympic spirit. Chariots of Fire and all that.

But the dons who run the Olympics have let professionals compete for more than 40 years. As a result, many of those who would benefit from this tax cut are as far from amateurs as one could imagine.  LeBron James, for instance, made $57 million last year in salary and endorsements. Kobe Bryant made $52 million. Michael Phelps made $10 million. Does BronBron really need an $8,700 tax cut? Seriously?

And even those winners who have not yet cashed in will do so soon enough. As Gabby Douglas is about to learn, a gold medal and a nice smile is worth untold bucks on Madison Ave.

Are there still U.S. athletes who compete for the love of their sport, and make great personal and financial sacrifices to participate in the Olympics? Absolutely.  Many medal-quality athletes now have sponsors who pay most of their expenses but some, especially those in minor sports, must work temporary or part-time jobs to pay the rent while training.

The thing is, those self-sacrificing athletes won’t be helped very much by this new bill. A single person whose only income is her $25,000 cash award and who has no deductions would owe about $1,900 in federal income tax. But, of course, a world-class athlete would likely have many deductible expenses—for coaching, travel, equipment and the like. It is not unreasonable to suspect that in the real world, many of those low-income non-professional athletes already owe little or no tax on their Olympic cash bonus.

Let’s not kid ourselves, the Olympics is big business. Paying athletes performance bonuses for winning medals is no less commercial than anything else the Olympic bosses do. But why this extra cash should be tax-free escapes me. At least hedge fund operators have to pay capital gains taxes on their bonuses.

As my colleague Eric Toder reminds me, there once was a time when this sort of special tax treatment was slipped into revenue bills by high-paid lobbyists in the dark of night. Now, the code has been so corrupted that pols propose this junk without even being asked. For that, I suppose, they deserve the gold medal of stupid tax tricks.      

 

 

 

10Comments

  1. Paul Weinstein  ::  2:36 pm on August 7th, 2012:

    Excellent piece Howard. Just to add to your argument, the prizes awarded by the United States Olympic Committee (USOC) are already heavily subsidized by taxpayers. For example, contributions to USOC are tax deductible as are corporate sponsorships. Furthermore, the USOC is partially funded from the proceeds of the minting of Olympic coins by the U.S. Mint. So asking taxpayers to cut another tax break to this effort seems not only unfair, but somewhat redundant.

  2. Dave  ::  3:09 pm on August 7th, 2012:

    I also read an article by a guy who does taxes for Olympians that endorsement bonuses for winning medals wouldn’t be taxed if Rubio’s bill is passed. The article is on taxtv.com. That seems ridiculous to me.

  3. Michael Bindner  ::  4:32 pm on August 7th, 2012:

    If we converted to a consumption tax based system, with only high income taxpayers facing an the income tax, then most athletes would have this money income tax free (unless they had a big endorsement deal – then it would only be income tax free if counted in the first $50,000).

  4. Jack B  ::  6:36 pm on August 7th, 2012:

    Thanks Howard for pointing out what a ridiculous idea this is. When I first heard of it I immediately E-mailed my representative in the senate (Mr. Rubio) regarding my displeasure with his bill. I haven’t received a reply. Somehow, I thought he was smarter than this. Pandering is part of politics, but does it have to be so obvious?

  5. Reconciliation  ::  7:01 pm on August 7th, 2012:

    […] – Matt Yglesias weighs in against a tax break for Olympians. Howard Gleckman gets even more aggressive, dubbing the proposed tax break on medals the “dumbest idea of the summer.” […]

  6. AMTbuff  ::  8:38 pm on August 7th, 2012:

    I completely agree. Obama and Rubio are pandering or clueless or both. Give me a candidate who respects my intelligence enough to take the right position on principle, even if it is a little harder to explain.

  7. Vivian Darkbloom  ::  4:12 am on August 8th, 2012:

    I’m surprised that Obama did not advise the Olympians to assign any medals and emoluments prior to the Games to a qualified charity—-say, the US Olympic Committee. If that had been done, the prizes would be exempt from tax under Rev. Proc. 87-54, 1987-2 C.B. 669. Obama did this with his Nobel Prize in 2009. Alternatively, the US could make such a pre-assignment a condition of participating in the Games. Tax problem solved.

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    […] probably won’t care for “Tax-Free Olympic Boodle is Gold Medal Stupidity” from Howard […]

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