When the senior senator from New York, Charles Schumer, and the president of Americans for Tax Reform, Grover Norquist, are on the same side of an issue in Washington, it's worth taking a moment to figure out what is going on. Schumer, a tax-and-spend Democrat, and Norquist, a small government, low-tax Republican, are usually policy foes. But when it comes to a special tax break for U.S. Olympic medalists, the two have emerged as unlikely allies.
Schumer this month launched what a press release from his office described as a "major push" to win passage of a bill known as the United States Appreciation for Olympians and Paralympians (USA Olympians and Paralympians) Act. The bill would make Olympic medals and the cash prizes that the U.S. Olympic Committee awards with them tax-free to U.S. Olympians.
Norquist's Americans for Tax Reform, meanwhile, is hosting a petition to "stop the IRS from taxing our Olympians." ATR warns that an Olympic Gold medalist could face as much as $9,900 in taxes on a $25,000 award from the U.S. Olympic Committee.
The Senate passed the tax break for Olympic medalists by unanimous consent on July 12. Sponsors of the bill included not only Schumer but also some prominent Republicans such as Senators John Thune (R-South Dakota) and Orrin Hatch (R-Utah). A companion bill awaits action in the House of Representatives.
I hesitate to get in the way whenever anyone is talking about lowering taxes of any kind. Even more so when the tax-cutting involves an unusual example of bipartisan cooperation.
But the more one gets into the reasoning behind this particular tax break, the more—well, to use an out-of season Winter Olympics metaphor—it looks like the senators and Norquist are skating on some thin logical ice.
This was brought to my attention by a post at the conservative website Hot Air that began, "Without the teeniest sense of irony, Sen. Chuck Schumer (D-NY) has proposed that America's Olympic medal winners should not have to pay taxes on the cash prizes they are awarded with their medals. Schumer's reasoning behind lifting the tax? Because 'hard work' and excellence shouldn't be punished. Seriously."
The point is that a whole lot of other income subject to federal taxation is also the result of hard work. Sen. Schumer seems to value the hard work of Olympic medalists enough to deem it worthy of tax-free treatment. But what about the hard work of the Wall Street investment banker or lawyer working through the weekend to close a merger or acquisition deal? Or of the plumber answering a call on a holiday weekend to fix a flooding toilet? Or a pro football player risking concussions, or a pro baseball player facing a 100-mile-an-hour fastball? What about the hard work of the surgeon who worked 90-hour overnight shifts as a hospital resident and fellow before breaking into the ranks of million-dollar earners?
In choosing a particular class of individuals whose hard work deserves to be tax free, Senators Schumer and Thune are engaging in a time-honored and troubling political game of picking favorites. When politicians established favored classes of those whose hard work gets better treatment than those of others, it not only adds complexity to an already egregiously complex tax code, it creates a beneficiary class of grateful recipients who now have politicians to thank for their special tax treatment. It breeds legalized corruption, as the beneficiary class then says "thank you" with campaign contributions or by hiring lobbyists with ties to the politicians who can keep the tax break on the books.
In choosing the "hard work" and "excellence" arguments to justify the Olympic tax break, supporters do touch on a key point about taxation; as much as possible, it should be crafted so as not to punish success associated with morally virtuous behavior. Yet even there, it's hard neatly to separate industry from plain luck. Olympic medalists worked hard, sure. But a lot of them also benefited from luck. I could practice all day and all night and I'll never swim as fast as Michael Phelps or run as fast as Usain Bolt. Those athletes have genes and bodies that, when work is added, permit them to achieve extraordinary things. Other athletes benefited from the good fortune of having parents who paid for coaching and lessons, or who had the time to drive their children to those lessons and to encourage them. Why should someone whose genetic gift is beach volleyball reflexes get a tax break, while someone else whose genetic gift is allocating capital or doing brain surgery pay full tax rates?
The politicians would probably be better off just lowering everyone's taxes, rather than picking and choosing a few already lucky Olympic athletes to reward with tax cuts. Good luck getting Sen. Schumer to back that idea, which would really be worth a gold medal.