Giving Olympians a special tax break wins the gold medal of bad ideas(Read article summary)
Despite what Congress wants you to believe, a bill making Olympic medals and cash awards tax free would do almost nothing to help truly struggling athletes.
It is the season of Olympic madness. No, not cheering over the dramatic finish of the women’s 400 meter sprint. That would make sense. Rather, it’s the politicians predictably trotting out a terrible tax idea: Making Olympic medals and cash awards tax free.
Like many gimmicks of its kind, this one sounds great at first: Why not give struggling amateur athletes a bit of a break and let them avoid income tax on their Olympic winnings. But take a closer look and you see this for what it really is: A way for politicians to use the tax code to make it appear they are supporting deserving Olympians when they really are not.
In reality, much of this shameless subsidy would help professional athletes who need it the least, and do almost nothing for the true amateurs who are desperate for financial support. But unlike past years, it appears this bill may actually pass.
In July, the Senate quietly approved the measure, called the United States Appreciation for Olympians and Paralympians Act and sponsored by senators Chuck Schumer (D-NY) and John Thune (R-SD). A companion bill has been introduced in the House and Ways & Means panel chair Kevin Brady (R-TX) has already announced he’d like his panel to report it next month. When this idea came up four years ago, President Obama also endorsed it. I wrote then that it was a bad idea. It still is.
Let’s start with a bit of background.
U.S. Olympic athletes may get two forms of direct compensation. First, of course, they may win a medal. The commodity value ranges from about $700 for gold to about $5 for bronze. More significantly (at least financially), U.S. Olympic Committee--not the U.S. government—pays medalists a cash bonus of $25,000 for winning gold, $15,000 for silver, and $10,000 for bronze. The bill would make these winnings tax-exempt. A gold-medal athlete in the top tax bracket would save about $10,000 in federal income taxes.
And there are plenty of them. Remember, the Olympics have let professionals compete for nearly a half-century. Take USA Basketball, which fields a team of some of the highest-paid athletes on the planet. Carmelo Anthony will make $24 million this year. Kevin Durant will rake in $20 million. And that doesn’t include their royalties, advertising fees, and other commercial ventures. Is Congress seriously thinking about giving them a tax cut?
Then, there are those who compete in sports such as swimming. Michael Phelps, who won five golds and a silver medal this year, will owe about $55,000 in taxes on his multiple medals and USOC prize-money. But Phelps has made an estimated $95 million from swimming over his career—nearly all from endorsement deals directly related to his Olympic success.
Lawmakers won’t say so, but athletes such as Anthony, Durant, and Phelps would benefit the most from this proposal—though they’d hardly notice.
What about all those men and women who do compete for the love of sport, and make enormous personal and financial sacrifices to participate in the Olympics? While some medal-quality athletes have corporate sponsors that pay most of their expenses, many others must work temporary or part-time jobs to pay the rent while training. Some survive by crowdsourcing.
Despite what Congress wants you to believe, this bill would do almost nothing to help them. A single person whose only income is her $25,000 cash award and who has no itemized deductions would owe about $1,900 in federal income tax. But, as I noted in the earlier piece, a world-class athlete has many deductible expenses—for coaching, travel, equipment, and the like. Thus, many of those true amateur athletes are unlikely to owe any tax on their Olympic winnings, even under current law. The new exemption would not help them at all.
If Congress wants to provide financial assistance to truly struggling athletes, it should just man up and establish some sort of fund aimed at helping those who need it most. They could pay for it by cutting the tax exemption of the U.S. Olympic Committee, which does remarkably little to support individual athletes. Passing a tax cut that would mostly help those who need it the least is little more than shameless pandering.
This article originally appeared on TaxVox.