A tax on excellence? The IRS goes for the gold
WASHINGTON, September 8, 2016 — A second round of sports festivities is about to begin in Rio de Janeiro. The much less celebrated Paralympics will proceed with no less fanfare, enthusiasm or athletic excellence than were on display in August, but with less media attention and fewer observers.
Among those observers will be the IRS. It will be more than just an observer; the IRS is going for Olympic and Paralympic gold.
The quality of competition at both Olympics and Paralympics is high. It follows from years and decades of rigorous training, a level of dedication few can match. For most athletes the payoff is in the participation. For a few, there are medals, and for fewer, there are sponsorships and endorsements.
U.S. Olympic medal winners receive medal bonuses from the U.S. Olympic Committee. Gold-medalists receive $25,000. Silver medalists receive $15,000, and bronze medalists, $10,000. The IRS gets its cut; Americans for Tax Reform estimates the typical tax owed on those winnings at $9,900 for gold, $5,940 for silver, and $3,600 for bronze.
Adding a bit of insult to injury, winners are taxed on the commodity value of their medals: $600 for a gold medal (made of gold-plated silver), $300 for silver, and $4 for bronze. The IRS might not care if you don’t pay any tax for your bronze medal.
Paralympians receive less: $5,000 for gold, $3,000 for silver, $2,000 for bronze. But however much or little they receive, the IRS will want its share.
In July, Republican Senator John Thune and Democratic Senator Chuck Schumer sponsored a bill in the Senate to exempt Olympians and Paralympians from taxes on their monetary awards. It passed, but a similar bill went nowhere in the House.
The U.S. is one of the few countries that taxes Olympic and Paralympic athletes on their medal bonuses. “After a successful and hard-fought victory, it’s just not right for the U.S. to welcome these athletes home with a tax on that victory,” says Schumer. He observes that most countries subsidize athletes’ training, while the U.S. does not.
Senator Marco Rubio agrees. In 2012 he sponsored similar legislation and argued, “We can all agree that these Olympians who dedicate their lives to athletic excellence should not be punished when they achieve it.”
Other opponents of taxing medal bonuses point out that the athletes have often given up job opportunities and spent enormous sums of money on their training. Jim Leahy, executive director of the U.S. Olympic luge committee says, “This tax places a hardship on our athletes and unfairly taxes them for representing our country and reaching the pinnacle of their sport.”
As Sens Schumer, Rubio and Thune argue, excellence should be rewarded, and the fruits of excellence should not be taxed. But when push comes to shove, those same senators may not completely agree.
The gold medalist at the 2013 Van Cliburn International Piano Competition in Ft. Worth, Texas, received a cash prize of $50,000. The silver medalist received $20,000. Don’t think they didn’t work as long and as hard as any Olympian, or pour as much money into their training. They hours every day practicing, and often traveled hundreds of miles a week for their music lessons. Do not they, and the winners of the Tchaikovsky, the Chopin, and dozens of other music competitions deserve to be exempt from income taxes on their winnings?
Nobel Prizes come with a cash award of about $1.5 million. The science prizes usually go to people who have spent years in college and in graduate school, then have pursued a line of research for decades, often going down wrong paths, starting over, then spending years more to make their discoveries. The single-minded dedication and sacrifice this requires are as great as the dedication and sacrifice to earn Olympic gold.
There are mathematics prizes, writing prizes and art prizes, great and small, for competitions all over the world. They best ones are given for an almost inhuman level of excellence that comes after years and decades of hard work. And when cash prizes are involved, we might say that taxing them “places a hardship on our musicians/scientists/writers and unfairly taxes them for representing our country and reaching the pinnacle of their craft or discipline.”
Should anyone who receives a prize awarded for excellence be taxed? Are athletes special? No. If you watch the Paralympics, you will see performances that are extraordinary. But the virtuosity of a great pianist or violinist is no less impressive and no less an achievement.
The Thune-Schumer bill is a nod in the direction of recognizing excellence. That nod should become and embrace, or it should become cold indifference. Exempt all our prize winners from income tax on their prizes, or exempt none of them. There is no justification to stop with athletes.