Why Marco Rubio Is Wrong on Olympic Winnings

He and Mitt Romney want to exempt medalists from taxes. But such loopholes are exactly what makes the tax code a complicated mess. 

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Senator Marco Rubio has long made tax simplification one of his talking points. And who (besides the ultra-wealthy and their lavishly compensated tax attorneys) isn't frustrated by the Byzantine rules, complicated exceptions and various loopholes and special provisions larding up the tax code?

But it's bizarre that Rubio is trying to marry that fight to his newest pandering policy proposal. Says Politico (emphasis added):

Sen. Marco Rubio is offering the Fab Five, Missy Franklin, Ryan Lochte and all the other American Olympic medalists more than just a pat on the back. He's trying to keep the IRS off their backs. Rubio (R-Fla.) introduced today The Olympic Tax Elimination Act, which would exempt U.S. Olympic medal winners from paying taxes on their medals.  Olympians receive honorariums in the form of cash payments of $25,000 for gold, $15,000 for silver and $10,000 for bronze, which the IRS currently taxes. "Our tax code is a complicated and burdensome mess that too often punishes success, and the tax imposed on Olympic medal winners is a classic example of this madness," Rubio said in a statement.  "Athletes representing our nation overseas in the Olympics shouldn't have to worry about an extra tax bill waiting for them back home."

Actually, this is a perfect example of why the tax code is a complicated and burdensome mess. Guys like Rubio stumble upon a category of earning that they regard as being "different," whether because there are campaign contributions in it for them, or because it advances a larger ideological agenda or, as in this case, because the category of people being taxed are popular. This particular loophole accords with a widespread intuition that the prize money and medals from an Olympic victory are unlike "regular income" that is subject to routine taxes. It also plays on general antipathy toward the IRS. Many can probably imagine what it would feel like to win an Olympic medal, and feel that they'd be resentful if presented with a tax bill.

But these are bad reasons to create a special exemption. The fact is that prize money from athletic victories is income, and there is no good reason for the government to treat that income differently than the income of all the non-Olympic athletes who earn analogous types of income. Why should Olympic athletes be exempted from paying taxes on their prize money, but not professional golfers, or poker players, or winners of literary prizes, or folks who win the lottery?

As a writer, there is a possibility that I'll one day put in four years of work on a book and receive a large income spike in a single year. It would benefit me, and would accord with my intuitions about fairness, if I were able to smooth that income as if it were earned over the four years I was doing the work, rather than paying a higher rate in the year when I received the unusually large windfall. I don't know whether the added complication to the tax code makes it worth passing a reform like that for income that is the product of a multi-year effort. I wouldn't be averse if a general reform of that kind was inspired by the visibility of Olympians, and applied to them.

But treating Olympic winnings as if they are singular and morally superior to other income, and even other prize income, cannot be justified, and least of all by someone who advocates tax code simplicity and objects to government picking winners and losers. Simplifying the American tax code is tremendously important. Rubio's proposal tries to trade on that importance, but it is no more than a cheap stunt, and the man proposing it seems not to realize that the impulse behind his bill is the very one he needs to defeat if he's serious about tax-code reform.