There’s been a bit of a furor lately over Olympians having to pay taxes on cash bonuses they get for winning medals. Yglesias has the details:
In this particular case, the issue is that the U.S. Olympic Committee—the nonprofit group that organizes Team USA for the games—rewards athletes with cash bounties for medals won. Gold medalists receive $25,000, silver medalists get $15,000, and bronze medalists receive $10,000. That’s income, so come spring of 2013 when medalists are filling out their tax forms, it’ll be reported and taxed like any other income. Their after-tax income will be higher if they do win a medal than if they don’t. There’s no “extra tax bill” waiting for anyone. There’s simply extra income, and the income would be taxed.
Just to clear up a piece of misinformation: the bonuses will be taxed at the marginal rate. For athletes who are making a lot of money, that could be 35%. For most, it will be much lower. And it seems very unlikely that the medals themselves will be taxed; just the bonuses.
Marco Rubio has proposed and President Obama has indicated he will sign a bill that exempts the Olympian bonuses from income tax.
I think it’s a bad idea.
Look, I’ve loved watching the Olympics and our athletes have made me immensely proud. It’s not just the performances; it’s the way they have carried themselves. With a few notable exceptions, they go into interviews well-spoken, polite, enthusiastic and patriotic. They’ve been respectful of the sport and their fellow athletes. I was particularly impressed last night with Allyson Felix, who was gracious, winning and plans to become a school teacher when she retires.
But does this mean we should be exempting them from taxes? Yglesias again:
The underlying issue is that taxes aren’t supposed to be a cosmic judgment on the underlying worthiness of people’s activities. The earnings of a great artist and a reality TV show producer are taxed the same. That can seem a bit perverse at times, but having Congress try to assess which professions are important and which are bad would be much worse. The goal of the tax code should be to try to raise an adequate amount of money in a way that’s economically efficient and meets social equality goals. That tends to mean as broad a tax base as possible—few deductions or exemptions, in other words—to make it possible to raise revenue with relatively low tax rates. Exceptions should generally be justified in terms of broad benefits to society.
Now, to be fair, Olympic athletes in other countries tend to have public support. And prizes of any kind were not taxed until 1986 (the law was changed because companies were hiding salary in ‘prizes’ given to employees). It also should be noted that Olympians make tremendous sacrifices for our national pride. To take Gabby Douglas as an example: she basically hasn’t had a personal life, moved across the country to train and her training bills bankrupted her family. I recently saw an estimate that a typical Olympian spends $250,000 to get there. I believe it when I see parents spending thousands a month just for cheerleading.
But making yet another wrinkle in the tax code is not a proper response to this. It’s merely a ridiculous bit of pandering to popular sentiment and the issue of the moment. We’ve heard all this bullshit from the Republicans and Democrats about how we need to overhaul the tax code to remove the hundreds of billions of dollars in deadweight loss it inflicts on the economy. Yet the second a pet issue comes up — Olympians having their bonuses taxed — that goes out the window.
The last thing we need is to be putting more complications into the tax code. We need to be streamlining it. If they can’t resist the outrage of the day, how the hell are they going to stand up to really powerful lobbies that want their special break protected?
If you want to subsidize Olympians, do it honestly like other countries do, with direct spending. That would actually be better, since it would support all Olympians, not just the tiny fraction that happen to win medals. (Think of the poor 4th place finishers who made as many sacrifices but don’t get the benefits). I’d be against that — we have plenty of private resources to support the Olympics — but at least it would be honest. At least it would be fair to all the athletes. And at least it wouldn’t clutter up our tax code with more bullshit.