August 20, 2012 Leave a comment
Taxing Olympic Heroes
Many Americans are quick to view the taxes they pay as representing a penalty for their success. “Make more money, pay more taxes. Nothing is certain except for death and taxes.” We’ve all heard this and possibly even said it once or twice ourselves-most likely during tax season. From the other side of the coin often come the complaints that the richest Americans pay considerably less than their “fair share”, in part due to the relatively lower capital gains tax rates that apply to investment income. Suffice is to say, taxes and tax burden are traditionally divisive subjects.
Just when we thought that we had heard it all and had this tax rhetoric in its proper perspective, here comes the news that US Olympic athletes, specifically medal winners, have tax bills waiting for them at home. Aside the value attached to the medal itself, our medal winners are taxed on the honorarium that accompanies their medals. Apparently gold, silver, and bronze medal winners receive what the IRS regards as income in the amounts of $25K, $15K, and $10K, respectively. At max tax rates, the 104 medals won by US athletes in the recently completed gains would by back of the envelope calculations generate approximately $672K in tax revenue for Uncle Sam.
Defining The Problem
The money is paid by the US Olympic committee (not the IOC), so getting out those 1099’s should be pretty a straight-forward exercise. On your marks, with those checkbooks Olympic Heroes. Don’t give it a second thought that your country is only a handful of countries which tax the Olympic success of their athletes. Put the parades down Main Street and speaking to kids about the rewards of disciplined lifestyles and hard work on hold. You’ve got bills to pay. Talk about a success penalty.
It seems that the logic used to justify this seizure of funds by IRS talons is that the US has a “worldwide” tax model. Under this model, according to the attached article (thttp://www.bbc.co.uk/news/magazine-19101429), US citizens have both federal and US tax liability for their earnings from abroad. Whether business person or US Olympic Hero, everyone is treated the same. Or so the underlying rationale would suggest. Even within the Olympic village, not everyone shares the same zip code in terms of socio-economic level. The obvious poster child for disparity within our own group of US medal winners is the NBA gazillionaire superstars vs. the comparatively, shall we say, “less compensated” champions who have excelled in other lesser-known sports on the very same world stage. Some currently live in considerably less-advantaged economic circumstances.
Moving Toward Solutions
Many, including US Senator Marco Rubio, would argue that this is simply not a common sense application of US tax code. Rubio has led the charge on publicity to accompany a bill he has introduced to eliminate the medals tax. Our tax code is already a complicated web of exceptions, exemptions, and other rules, so why not add another one to eliminate the medal tax? Maybe make it applicable, if the athlete would have without having won a medal, reported income above a certain threshold? Come to think of it, IRS could even apply a flat rate of maybe..say 13%, if that’s what most Americans really pay in taxes. Point here would be to apply a very low rate if it really is socially and fiscally appropriate to apply tax at all.
After all, missing out on $672K in revenue every four years seems pretty inconsequential compared to the positive effect that making the honorarium tax-free could have for US medal winners not named Kobe, Lebron, or Carmelo. More athletes, than not, could probably use the gross proceeds toward an improved standard of living for their families and for themselves. Seems like the least we could do for our fellow countrymen and women who strike Olympic gold…silver, and bronze.
Photo credit – Paul Hudson