The USA is crushing it at the 2016 Olympic Games – as usual. With just days left for the international sporting competitions, the United States has racked up 100 medals in total almost twice the amount of second-ranked Great Britain.
When athletes win gold, silver, or bronze medals, not only do they earn the title of being the top athletes in the world for that sport, but they walk away with prize money. The U.S. Olympic Committee doles out a $25,000 bonus for winning gold, $15,000 for silver, and $10,000 for bronze. For those athletes who don’t have endorsement deals like swimmer Michael Phelps, but who work multiple jobs to make ends meet while training, the boost in income is welcome until they realize the tax bill that Uncle Sam has in store for them.
Congress thinks it has a solution: another tax break.
A bipartisan bill advanced through the Senate in July that excludes bonuses paid for winning Olympic medals from income. For gymnast Simone Biles that’s $85,000 off the top of her earnings, which may be in the millions given her endorsements with Hersey’s, Nikes, and Kellogg’s – not a big deal. However, it may go a long way for those with no deals, but lots of expenses and debt.
Not to be left out, the House is expected to introduce their own version of the bill next month when they get back from August recess and since the White House has supported similar proposal in the past, the bill has promise:
“Our Olympic and Paralympic athletes make numerous personal sacrifices while training to represent the United States on the global stage,” Rep. Robert Dold (R., Ill.) said in a statement. “But when they return home with a medal for Team USA, the IRS forces the athletes to pay a penalty for their success.”
This seems patriotic and helpful, but not everyone is convinced. The Tax Foundation questions why Congress would create yet another exclusion or carve-out when our tax code is laden with them:
“The U.S. tax code is in such bad shape in part because we have so many exclusions, deductions and credits like this one,” said Scott Greenberg of the conservative-leaning Tax Foundation.
Furthermore, it may be unnecessary. This tax break benefits big-time athletes who generally are capable of earning big incomes. Meanwhile those athletes who don’t earn as much may not have a huge tax bill when you factor in their training-related deductions. Catherine Rampell explains in a Washington Post op-ed that they may owe little or nothing on their winnings. She hammers why this tax break idea is a bad one:
More broadly, it’s frustrating that our elected officials constantly complain about the complexity of the tax system and yet insist on cluttering it up with even more special carve-outs.
One well-meaning tax break surely seems relatively harmless. But hundreds or thousands of them compiled together — for struggling actors, tampons, profits on Alzheimer’s drugs, educators, clarinet lessons, whatever group or cause du jour seems worthy and sympathetic — are precisely what make income (and sales) tax systems so complicated.
Those carve-outs are not free, either.
The more activities or products you shield from taxation, the higher the tax rates on everything else have to rise to make up for the lost revenue.
Rampell makes a compelling argument. With a simple tax code and lower taxes, we all benefit rather than targeting benefits at specific interests, groups, or even items. The plethora of deductions and credits are examples of how Washington picks winners and losers in the tax code.
We want all athletes to get tax relief just like we want all single mothers, working couples, and Millennials working their first jobs to get tax relief.
Lower taxes and a less complex tax code gets us there, rather than piecemeal feel-good breaks here, there, and everywhere.