"Unfair Tax" on Olympians?

Azdak

This a perfect topic for this group during the Olympics. It is something of trivial importance, but something that's easy to form an opinion about.

Last Wednesday, Sen Marco Rubio (R-FL) introduced the Olympic Tax Elimination Act, which would make Olympic medals and awards exempt from federal income tax.

The US Olympic Committee gives cash awards to all Olympic medal winners: $25K for gold, $15K for silver, and $10K for bronze.

When introducing the bill, Rubio claimed that "Athletes representing our nation overseas in the Olympics shouldn't have to worry about an extra tax bill waiting for them back at home." He also blamed the tax rule on a "complicated and burdensome mess" of a system "that too often punishes success."

As you can imagine, the Facebook posts and internet chain emails soon followed, claiming that gold medal winners would be "charged an extra tax of $9,000 (35%) for a gold medal", and full of outrage against the "Obama thugs" who want to "punish people for their success".

Matty Yglesias posted a rebuttal today in his column for Slate magazine online. He starts off by saying:

If they gave out awards for dumb new policy ideas, President Obama and Republican rising star Sen. Marco Rubio would both be medaling this week.

President Obama is included because he has backed Rubin's bill.

Both Yglesias and another related article in Forbes state that the main reason this has gained attention is because most people don't understand how marginal tax rates work, and so it is an issue that is easy to exploit for political purposes. And while the $9,000 figure is thrown about, that would only be true is the entire amount were subject to the 35% tax rate--for that to happen, the golden Olympian would have to earn $388,350 per year. Furthermore, that income can also be offset by a number of deductions which would reduce the tax bill even further -- or eliminate it altogether.

But, as Yglesias points out, this has nothing to do with the medals themselves:

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.

Any "extra income" is subject to income tax, whether it comes in the form of an Olympic medal, a year-end profit bonus from your company, casino winnings, etc. We received a bonus from the hospital I work for this year for our financial performance in 2011. The amount for each person was $350. What came in my paycheck was $220.00. Easy come, easy go.

Yglesias objects to singling out one category of awards for special treatment:

In fiscal terms, the change will be minuscule. In terms of fairness, it seems like a strange slight to winners of other kinds of prizes. Are Olympic medalists worthier than winners of the Nobel or Pulitzer prizes? And of course exempting all prize income from income tax could merely encourage all kinds of people to restructure their income as prizes. The J.P. Morgan Memorial Prize for Achievement in Investment Banking, anyone?

Ultimately, Yglesias hits the nail on the head:

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.

So, what do you think? Faux outrage or impending Armageddon?

Dragonwolf

So...Am I misreading something, or does the outrage seem completely backwards from the bill? My understanding from the OP is the Olympic prizes would be exempt from taxing, which would, effectively put that money back into the winners' pockets. If that is correct, then why are people complaining about "Obama thugs" or whatever in the first place? And shouldn't the Republicans be cheering for it, since it's eliminating a tax?

Or...did I miss something?

That said, $25k is a lot of money. I'm not really sure about the demographic of Olympians, but I know that's roughly the same amount of money my parents make in a year. Depending on where the Olympian sits in the income brackets, just one gold medal could easily put them into a different one, increasing the amount they're taxed, and potentially subjecting them to penalties for not paying enough in, depending on whether the prize checks take taxes into account like standard W2 paychecks do. Get three or four golds like some of these guys do, and that's a lot of money getting taxed and potentially penalized. (For those who aren't familiar with US tax code, you have to pay 90% or more of your projected tax burden by April 15th, and make payments at least quarterly, or you'll be subject to penalties based on a percentage of what you owe. Most standard (W2) employees don't have to worry about this, because their employer handles deducting the amount necessary and making the payments on behalf of their employees, but it's why you get money taken out every check.) I can see why Rubio came up with exemption.

Do I agree with it? I don't know, to be honest.

Like I said, that's a lot of money they're getting. They're also spending crazy amounts of time training for this event, and it's not like the sport happens to also be their job (since you can't be a professional at the sport(s) you're competing in), which means they have to do something to make money. It makes sense to not tax someone for going that far above and beyond what most people do. Additionally, earning the money from the Olympic medals would very likely disqualify them for a number of tax breaks they would have otherwise received, reducing the deductions (which may or may not matter, I'm not a tax specialist, so I'm not sure on the ins and outs of the hairy mess that is US taxes). As long as the bill is narrow enough to require going that far above and beyond (and I would also include things like Nobels and Pulitzers), I don't really have an issue with making them exempt.

On the other hand, as is mentioned in the OP, it's income. From a financial standpoint, it's money in just like any other. Why shouldn't it be taxed any differently than any other income? (Though, I thought windfalls such as this and other "bonuses" were taxed differently?) Assuming it's classified as "income tax" (and not "bonus" or whatever), then I can also understand the argument to leave it alone and let it be taxed. The deductions question then becomes a double-edged sword, since taxing the Olympic award money would disqualify them for certain deductions, so making the exemption would, in a way, give them "free money" above and beyond just the award money (in the sense that they effectively get taxed as though they made only, say, $35,000, as opposed to being taxed on the full $135,000 that they technically "made").

lour441

I knew it! Obama hates Olympians!

Seriously though, income is income. Pay your taxes. This is like someone winning a million dollar lottery prize complaining about having to pay a big tax bill. Yes you have to pay ~$350k but you got ~$650k after taxes. Pretty sure most people would take that deal.

fbmandy55

The US Olympic committee gives them this money? I would say if it is money earn overseas, why should they have to pay a tax on it in the US? If I moved from England to the US should the US be able to tax me on the money I earn in a different country?


I have mixed emotions on this one. I feel like everyone should pay their income taxes from their JOBS within the US but I am completely against taxing people on items/money they win whether it be lotto, a competition or a raffle.

Bronx_Montgomery

Why is it unfair? I get taxed huge amounts when I get a bonus. No difference

ItsCasey

First of all, I don't think the tax is unfair within the context of our current tax laws. If your view is that the money is earned, then it's income, and everyone is taxed on their income. If I earn money in a foreign country and try to repatriate those earnings to my U.S. bank account, I am taxed on it. Why should Olympians be any different? If your view is that it's a prize, well, everyone has to pay taxes on prize winnings, too.

But the author's assertion that taxation should be structured to meet "social equality goals" renders his entire opinion useless. Typical Communist BS. The only purpose of taxation should be to pay for publicly-provided services that everyone uses ... you know, like highways, the protection of firefighters, policemen, the military, etc. Punishing achievement and stealing money from the producer class to give to the moocher class under the guise of "social justice" isn't exactly a shining example of equality. It's the government saying to lazy people "We like you better because we can buy your votes."

fbmandy55

Why is it unfair? I get taxed huge amounts when I get a bonus. No difference

My paycheck comes from a non-profit, that doesn't have to pay taxes, but they tax my paycheck! :grumble:

macpatti

The Olympic Tax Elimination Act is a joke. If you earn money, it's income. Income should be taxed according to the laws of your country. Like someone else said, even bonus checks and prize money are taxed.

lour441

The Olympic Tax Elimination Act is a joke. If you earn money, it's income. Income should be taxed according to the laws of your country. Like someone else said, even bonus checks and prize money are taxed.

Yes but their achievements are more important then your achievements!

macpatti

The Olympic Tax Elimination Act is a joke. If you earn money, it's income. Income should be taxed according to the laws of your country. Like someone else said, even bonus checks and prize money are taxed.

Yes but their achievements are more important then your achievements!

Well, this is true.

LastSixtySix

The Olympic Tax Elimination Act is a joke. If you earn money, it's income. Income should be taxed according to the laws of your country. Like someone else said, even bonus checks and prize money are taxed.

Yes but their achievements are more important then your achievements!

:laugh: Opportunistic politicians who seek to further divide and separate citizens into one class and another. . .what is equal about that? Or fair? Why should Olympians - and I adore Olympians! - receive any different treatment in the tax code or legal standard than any other brilliant performer? I heard recently about an MIT scientist who was awarded a $3 milliion physics prize. Who is to judge that Olympian athletes get a tax pass on their award but a brilliant scientist does not?

Pandering Rubio, using the Olympians to get his own name in the paper. It is just another campaign ploy to gain votes but will do nothing but harm if applied. Here's yet again one more Republican giving a tax exemption to those of a specific class. . . under the enduring myth of this land of equality and no class divide.

I guess the GOP goonies only liked the simple egalitarian 9 9 9 tax plan with no exemptions until Herman Cain self imploded. :explode:

-Debra

lour441

The Olympic Tax Elimination Act is a joke. If you earn money, it's income. Income should be taxed according to the laws of your country. Like someone else said, even bonus checks and prize money are taxed.

Yes but their achievements are more important then your achievements!

:laugh: Opportunistic politicians who seek to further divide and separate citizens into one class and another. . .what is equal about that? Or fair? Why should Olympians - and I adore Olympians! - receive any different treatment in the tax code or legal standard than any other brilliant performer? I heard recently about an MIT scientist who was awarded a $3 milliion physics prize. Who is to judge that Olympian athletes get a tax pass on their award but a brilliant scientist does not?

Pandering Rubio, using the Olympians to get his own name in the paper. It is just another campaign ploy to gain votes but will do nothing but harm if applied. Here's yet again one more Republican giving a tax exemption to those of a specific class. . . and here you Republicans were for the little people and the land of equality and no class divide.

I guess the GOP goonies only liked the simple egalitarian 9 9 9 tax plan with no exemptions until Herman Cain self imploded. :explode:

-Debra

It is hardly Republicans giving tax exemptions to those of a specific class only. Democrats are just as guilty. Anything for a vote.

Azdak

The last part of Yglesias' article, which I did not quote, addresses this issue within the broader context of tax reform in general. Most people and most of our politicians state they are in favor of "tax reform"--by this they mean various forms of tax law simplicfication, closing of loopholes, broadenening the tax base, etc.

One of the reasons that our tax law is so complicated is that politicians find it impossible to resist tinkering with it in order to use tax laws as incentives/disincentives for whatever reasons they choose. Yglesias' points out that this is just one more example of how politicians--and by extension, most of us--say we want one thing and then do another.

I am opposed to the idea of a "flat tax", but even if we did distill our tax code down to about 3 pages, I predict that within a decade it would be up to 1,000 pages again. The fact that you have both Rubio and Obama on the same page clearly shows the difficulty of self-restraint when it comes to this issue.

LastSixtySix

Right, Obama joined Rubio. In a campaign, he really has no choice. You do things to get elected that no one seriously does to govern. No one wins elections by adding taxes. But it's the Republicans and the TeaPartiers who keep playing this ridiculous card. We've all fallen for it too many times, i agree.

-Debra

focus4fitness

Thinking about people like Sarah Robles makes me very torn on this issue.