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Olympic Taxes – Politics Gone Crazy

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Once again, Kosmo from The Soap Boxers passed a noteworthy news article my way. This article about taxes of Olympians bordered on the ridiculous on Fox News. The title? "The price of gold: Taking first place in Olympics could cost US stars as much as $10G in taxes."

At first glance it seems like an important article. It would seem to be very, very wrong to tax athletes extra for performing extremely well. However, a brief reading shows that this is making a big deal out of nothing. It seems like the title was created to just to rile people up and get them reading. (I really don't like this tactic as it leads to disappointment and wasted time. I hope people don't come away with that after reading my articles).

Here's what's going on. When Olympians win a medal they get a cash bonus. The United States, correctly considers this earned income like any other earned income and requires that taxes be paid on it. As Kosmo put it in his email to me, "I’m pro-Olympics, but the basic concept here is a cash award. My cash bonuses are taxed, too." (Side Note: Kosmo has a very unnatural obsession with the luge.)

The Fox News article also made the point to bring up the most extreme case where someone like Shaun White who has millions in endorsements would find himself in the top tax bracket and a gold (having the highest cash bonus) would have produced the 10K in taxes. Allow me to counter that with a "So what?" Is the average American supposed to be outraged White has to pay $10,000 of taxes for receiving a $25,000 bonus when he's worth millions and millions? Can't you think of at least 72,391 other things to get more outraged about?

I thought I'd play devil's advocate and bring up the point that they represent the country. I asked whether foreign diplomats get tax exemptions (they do) and noted that our family (due to our active duty military status) receives some tax brakes. So maybe there is something to representing the country? Kosmo wisely shot down my off-the-cuff logic by pointing out that the are employed by the government.

In the end, I had to agree, I can't see any reason why Olympians should get their bonus money tax-free.

Even though I implied previously that Fox News is just creating headlines for attention, it does seem like a politician backs the idea of creating a special exemption for athletes. The article states:

On Tuesday, Texas GOP Rep. Blake Farenthold re-introduced legislation -- the "Tax Exemptions for American Medalists (TEAM) Act" – that would exempt U.S. Olympic athletes from paying taxes on the medals and the accompanying money.

"This needless tax illustrates how complicated and burdensome our tax code has become," he said. “We need a fairer system for all, and eliminating this unnecessary tax burden on our athletes is a good way to start.”

It seems to me that Farenthold is suggesting with this legislation that they should make the tax code even more complex... adding a special exemption to the existing tax code for Olympic athletes. He then takes it a step further and suggests that this is somehow a fairer system. I fail to see how it is fair to give people with physical skills a tax-break, while other talented people such as Bob Costas covering the games wouldn't get one.

I can't follow the logic there. Fox News should have challenged Farenthold to explain his logic.

Last updated on August 12, 2014.

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12 Responses to “Olympic Taxes – Politics Gone Crazy”

  1. tom says:

    LOL… I hate politicians.

    Farenthold is only doing this for media exposure. I wonder how much time he wasted to come up with the title of the Act.

  2. Peter says:

    While I tend to agree that there shouldn’t be a special exemption for athletes, after reading an article today about the extraordinary cost of becoming an Olympic athlete, and just how strapped for cash many of them actually are – just to compete, I can at least understand why many of them wouldn’t want to part with taxes on their prize. Becoming a medalest – or even a competitor can cost thousands upon thousands of dollars for these athletes. But then again – they do make that choice to go down that road.

  3. kosmo says:

    They had to limit it to medalists because Tax Exemptions for American Teams had an unfortunate acronym. (Yes, congress wastes way too much time/money on cute names for their acts).

    Definitely a good point that the “worst case” scenario is someone like Shaun White (although he didn’t medal, so I guess he’s happy about the tax consequences). I don’t begrudge White his wealth – more power to him for capitalizing on his skills. However, I also don’t lose sleep over his tax bill.

    In most events, these athletes are in the lower tax brackets. A biathlete doesn’t tend to pull down six figures unless they freelance as a ski-borne assassin. As such, they aren’t paying a ton of taxes on the bonuses. I’m sure for them the net amount they get is a lot better than a kick in the head.

    If the government wants to actually help Olympic athletes, maybe it could fund the Olympic teams.

    It’s not an unnatural obsession with luge. I only follow Olympic and World Cup competition.

  4. tom says:

    I think that just about summarizes every article about politics!

    Anyway, to add to the actual discussion, they should be taxed on winnings, even if it’s a gold medal. More often than not, their sport is their job and the way they get paid is through endorsements and winnings. Should we not tax any athletes for their winnings at any international tournament where they represent the US?

    Just an additional dumb complexity.

  5. Mori says:

    Please tell me your not comparing an Olympic athlete to Bob Costas.

    • Lazy Man says:

      Peter,

      I agree the costs for the Olympic athletes are crazy. However, I’ve read similar things about violin prodigies getting training there. I guess they have their own Olympics (symphonies and such). The cost is kind of crazy, but I’d go with Kosmo’s solution of subsidizing the training. This way you don’t get to a scenario where someone pays hundreds of thousands in training, finishes 4th, and gets no benefit from the government.

      Mori, Bob Costas is considered a very good broadcaster and he’s probably better known that most of the athletes. Why should the taxation for his talent be any different than the athletes? Is it really the tax code’s place to characterize talents.

  6. Someone told Fox and that Senator that the Olympics had good SEO keywords for this week… LOL.

    Personally, I think the Olympics are self serving for the athletes. Without winning, they do not have income. There is no “rep the country” when you get to the bottom line. And you could easily argue the merits of representing a country in a sport like curling.

  7. Vogel says:

    I think the argument is backwards. The winning athletes typically aren’t the ones that need the tax break; it’s the non-medalists that need it most.

    Top-tier Olympics U.S. athletes are typically relatively well funded, and if they win gold, they’re likely to make millions in endorsement deals. Some of the athletes that haven’t even won a medal yet but are mere hopefuls already have ads running on TV midway through the Games.

    Many countries use Federal subsides to promote performance by their Olympic athletes, often targeted at specific events in which they hope to become competitive. Sometimes the subsidy comes in the form of a direct cash reward for bringing home medals. The U.S. could use that kind of targeted incentive, but U.S. teams are already competing at or near the top levels in most events in the absence of special tax subsidies on winnings.

    I can think of many other endeavors that are underfunded and deserving of tax breaks and subsidies. It’s not all that uncommon for people to have to work tirelessly and make endless sacrifices to excel in a field of endeavor where the rewards along the way are sparse. We (the taxpayer) could offer a helping hand to all of them, but we would have to pay for it. I wouldn’t really have a problem with paying a few more dollars to support needy promising athletes; aspiring students in the sciences, humanities, and performing arts; high-performing low-wage workers and community volunteers. And while we’re at it, a few dollars more for improved education of kids; neglected infrastructure; ecological preservation…the list is long!

  8. Kosmo says:

    “Personally, I think the Olympics are self serving for the athletes. Without winning, they do not have income. There is no “rep the country” when you get to the bottom line.”

    Even WITH winning, they don’t have significant income in many cases. Athletes in the marquee sports can cash in, if they win a gold medal and/or have sex appeal. If you’re an ugly guy on the curling team that wins the bronze, you’re not going to be in any TV ads. With luck, you’ll leverage the medal into a coaching gig. Michael Phelps and Shaun White are extreme outliers when it comes to Olympian earnings.

    In many cases, the athletes go to the Olympics knowing there is no way they can possibly win. In some events there is always the chance you could get on a hot streak and win That’s not the case for many events, though. The 10K run, for example. In 2012, Lisa Koll Uhl represented the USA (we attended the same college, so I’ll use her as an example).

    Uhl is a tremendous 10K runner – the NCAA record holder and one of the fastest American women even to cover the distance. Guess what? She set a personal best in the Olympics … and finished 13th, finishing more than 50 seconds off the pace.

    Uhl went into the Olympics knowing that it was 99.99% certain she wouldn’t medal (barring a crocodile getting onto the track and eating several other runners) – but yet she, and many other “no chance” athletes compete in the Olympics.

  9. […] While it may sound like a ton of money, such costs of elite training is nothing new. Olympic athletes and violinist prodigies have similar costs. In fact, the comments on a previous article covered this. […]

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