Taxes

NCAA Okays Paying Student Athletes, Republican Senator Immediately Wants to Tax Their Scholarships

Sen. Richard Burr's proposal would heavily deter any student-athlete from getting paid.

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"Americans need a break," said Sen. Richard Burr (R–N.C.) in 2017, following the passage of the Tax Cuts and Jobs Act. "Let's put more money back into the pockets of Americans."

Contrast that with his most recent stance on this issue, specifically pertaining to the NCAA's recent decision to allow college athletes to profit off of their name, image, and likeness.

"If college athletes are going to make money off their likenesses while in school, their scholarships should be treated like income," he tweeted. "I'll be introducing legislation that subjects scholarships given to athletes who choose to 'cash in' to income taxes."

The cognitive dissonance is baffling. I thought Americans needed a break?

Previous NCAA rules prohibited student-athletes from monetizing their talent and fame, even as the multibillion-dollar industry rested on their shoulders. California sparked the beginning of the end of that policy when Gov. Gavin Newsom signed the Fair Pay to Play Act last month, which paved the way for athletes in the state to start making money in 2023.

"We must embrace change to provide the best possible experience for college athletes," Michael Drake, the chairman of the NCAA Board of Governors, said in a statement following the group's decision to ease the prohibitive rules nationwide. "Additional flexibility in this area can and must continue to support college sports as a part of higher education. This modernization for the future is a natural extension of the numerous steps NCAA members have taken in recent years to improve support for student-athletes, including full cost of attendance and guaranteed scholarships."

But if Burr has his way, those scholarships would come at a high cost. In practice, this would disenfranchise just about every college athlete that hasn't reached superstar status by the time he or she graduates high school.

Consider a relatively unknown athlete who accepts a full-ride offer to a university at age 17. On average, the four-year price tag at a private institution amounts to $147,204, while an out-of-state student at a public institution pays $90,308. Who would be able to pay income taxes on that enormous lump sum when he or she has no guaranteed income other than a potential revenue-sharing check split countless ways? Only the few athletes with prodigious talent and promise of future sponsorships might opt in. Everyone else would be wise to take the scholarship and simultaneously sign away the right to profit from their hard work.

That would undoubtedly be a slap in the face to the scrappier athletes who improve tremendously in school. Take Steph Curry, for example, who went to Davidson College—which, at the time, sported a no-name basketball program—after Virginia Tech declined to recruit him. Davidson is no longer off the map, and for that, they can thank Curry, who is now a six-time NBA All-Star.

Indeed, Burr's proposition sounds more like an effort to dismantle California's law and the NCAA's subsequent change rather than an attempt to codify sound tax policy. Under his proposal, if a subsidized athlete chose to pursue sports-related moneymaking opportunities, their scholarship would be taxed as if the student were receiving it as a salary. But anyone who has attended college on scholarship knows this is patently absurd. Since when is free tuition equivalent to earning a living?

While the conversation around the new NCAA policy has been dominated by talk of "image and likeness," it also opens the gate for athletes to take advantage of smaller opportunities, as well—prospects that most people may not have assumed were off-limits. "For a tennis star, it could lead to giving paid lessons to recreational players," The Wall Street Journal notes. "For a gymnast with a crowd-pleasing floor exercise, it might mean monetizing a YouTube channel."

All of those avenues—big and little—reflect student-athletes' dedication and ability. Puzzlingly, Burr has spent his time in Congress defending people who use free markets in that same context. Why are athletes any different?

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  1. The California law is a total infringement on the right to contract, at least with regards to private schools. Those schools have a right to compensate their student athletes anyway they want. If they choose to do that in the form of tuition and room and board and in return demand both the athletes’ services and any money they make off of their likeness while they are enrolled, that is their right. If the athletes don’t like the deal, they don’t have to take it. Demanding that colleges pay athletes is no different than demanding a minimum wage.

    If there is a problem with the NCAA, it is that it is a cartel. All the schools got together and agreed to what amounts to a salary cap for paying athletes. Reason never seems to have a problem with the tech cartels, so what is the problem with the NCAA? Also, there is nothing stopping schools from leaving the NCAA and forming their own competing organization that does pay its athletes.

    1. States have always had the right to invalidate (portions of) contracts they think are against public interest.

      Which is to say, it isn’t unique to California that not all contracts are valid.

      1. Sure they have the right to do it. That, however, doesn’t make it right. And supporting their right to do it here is completely inconsistent with reason’s position on invalidating every other contract. So why is this different?

        1. Shooting from the hip?

          Because it’s a law/policy that better empowers individuals to profit from their own labor, and reduces economically-unwise coercion.

          Sort of like how California invalidating no-compete contracts makes it easier for folks to move from a bad job to a good job, and means companies have to actually try to make folks want to work for them, and can’t coerce folks into staying (because they can’t get a decent job for two years if they leave).

          1. That is complete bullshit. You think it better empowers people but they don’t or they would have never signed the contracts. The assumption behind your argument is that people are not capable of knowing what is best for them and the government needs to step in and cancel contracts that are voluntarily entered if it feels the terms are not in the person’s best interests.

            There are two sides to every issue. You think those noncompete clauses are bad but the employters didn’t. It is part of the compensation they get in return for paying their employees. You want to make it easier for employees to break a contract and walk away, you are then making it harder for employers to hire and train people because they have to assume the risk of them leaving. Non compete clauses enable employees to pay to train their workers. Get rid of those and employers will stop doing that. Why pay to train someone when you know they are going to quit and go somewhere else before they give you enough value back to justify the training?

            You are not helping freedom here. You are just restricting freedom and telling people they can’t enter into contracts that you don’t think are in their best interest.

            1. This is true. Not only is nobody making them go to these (or any) colleges, but even as college students, nobody is making them play in intercollegiate competition rather than turning pro. I see nothing fundamentally wrong with NCAA’s trying to maintain amateur competition, although it may be rather silly for them to try to keep doing that in the present milieu.

              1. “NCAA’s trying to maintain amateur competition.”

                They are the farm league for the pros.

                I’m no Lois Lerner and I’m not a fan of the IRS or progressive tax systems, but I’m sure the IRS has fairly well defined definitions of income, to include in-kind payments and donations. If scholarships are exempt or not is subject to change on a whim.

                As far as the talent monetizing themselves, that also is answered in the same place. Being a student or athlete has no relevance to income and taxes.

            2. Yes, we know you only believe that coercion is wrong when it’s poor people doing it.

            3. “The assumption behind your argument is that people are not capable of knowing what is best for them and the government needs to step in…”

              Progressive is as progressive does.

              From a libertarian perspective, even if people truly are incapable of knowing ‘their best interests’ that STILL does not justify government intervention.

              Unless we are willing to start declaring individuals incompetent on a case by case basis.

              1. Refusing a contract-based free-for-all isn’t a “progressive” thing. That’s basically an “everyone but libertarians” thing.

                1. WTF are you talking about?

      2. States have always had the right

        Nope.

    2. I think you overstate the market power of either athletes or fans in a system that has no governing body for the sport itself.

      We have governing bodies for individual sports in the US (USGA, USTA, etc) – but for team sports, where the need for a governing body is magnitudes higher, they don’t exist here. Instead the professional league cartels (MLB, NBA, NFL) collude with their feeder league cartels (MiLB, NCAA) to ensure there is no free market. And it becomes obvious when you see how few pro or semi-pro opportunities there are for those athletes in the US.

      The four main team sports really do need a governing body for the sport – akin to the football/soccer associations elsewhere – that is outside the control of any specific league or team and where the mission is similar to USGA/USTA.

      1. I don’t see how one huge national or internation cartel is an improvement over a few large ones.

        1. A governing body is not a cartel. Its mission is to grow the sport itself and in most places is composed of fans, athletes, club owners, team owners, etc. People from all sides of that sport – not just team owners-in-cartel. A governing body. Yeah – it does ‘cartel’ type stuff in setting the rules of the sport and ensuring that leagues are competitively skilled so that games themselves are competitive. Anyone who can’t see that that is a part of sports simply doesn’t understand sports.

          A cartel is only on the producer side and the economic goal is to reduce the sport so that it is composed only of a small group of athletes and a huge population that only spectates.

          The difference re say Germany/soccer v US/basketball — German Football Association has 7 million adult members, 2 million adult players, 170,000 teams, 25,000 clubs, 5000+ leagues, 2000-3000 teams are semi-pro or pro so maybe 50,000 semi/pro athletes. US basketball has the NBA plus NCAAD1 – so a bit under 400 semi/pro teams – roughly 5,000 semi/pro athletes. Lots of people may play in pickup leagues but since they can’t find competition or schedule games or find easy ways to form a team or have some ‘competition for everyone’ (similar to US Open in golf or FA Cup in England), it means they quickly die and fans are just left to spectate. Which is exactly what the NBA and NCAA want.

          1. “A cartel is only on the producer side and the economic goal is to reduce the sport so that it is composed only of a small group of athletes and a huge population that only spectates.”

            LOLwut?

            Maybe if you clarified what you mean by ‘sport,’ because FIFA has not done anything to reduce the number of people playing soccer/football, if anything they have probably driven an increase in the number of people doing so worldwide.

            What you are really talking about is their entertainment product.

            1. Licensed entertainment product, to be more specific.

            2. FIFA is a meta-governing body. AFAIK, it doesn’t actually serve as a governing body for the sport in any country. It doesn’t even set the international rules for the sport itself – that’s IFAB. It is merely the governing body for international competition (ie World Cup) in that sport. FIFA’s members are the national governing bodies. Some of which are world-class competent (Germany, UK, etc). Some of which aren’t for different reasons. But it is those national associations that ‘grow the sport’ – not FIFA.

    3. I think college athletes should get some money. Not to the level of professional athletes, but enough that they can take their girlfriend’s out on some nice dates.

    4. Except for the fact that it is a monopoly. College athletics is the only way to enter professional basketball and football. This is a mandatory, multi-year, untrained training program that bans any and all outside income with a very small fraction of students ever being offered a job afterwards. That is illegal in every industry aside from athletics.

      Monopolies change the rules because they prevent the natural mechanisms of capitalism from working.

  2. Why would the revenue sharing check from name and likeness be split countless ways? Shouldn’t it go to the star players who earn it? That portion should certainly be taxable (if you believe in taxes), but not the base scholarship amount.

    1. That would undoubtedly be a slap in the face to the scrappier athletes who improve tremendously in school. Take Steph Curry, for example, who went to Davidson College—which, at the time, sported a no-name basketball program—after Virginia Tech declined to recruit him. Davidson is no longer off the map, and for that, they can thank Curry, who is now a six-time NBA All-Star.

      That is true. And Davidson also has given scholarships to a ton of other basketball players who never did anything for the school. Why should the fact that did well with one of its athletes now invalidate the contract or make it unfair? Had Curry never amounted to anything Davidson still would have owed him his scholarship. The fact that it worked out well for Davidson doesn’t make the contract invalid or unfair.

    2. “Why would the revenue sharing check from name and likeness be split countless ways? Shouldn’t it go to the star players who earn it?”

      Ironically that is how the NFL (which arguably has the worst players association of any major sport league) does it.

      Conversely the NBA, with an extremely successful players association, shares all of that revenue equally among the players.

      Perhaps the parties involved recognize certain shared interests in a manner that non participants do not so easily recognize?

      1. e.g. when every player has a (albeit small) piece of LeBron maybe they recognize a shared interest in the success of LeBron, or at least are not so inclined as to seek to destroy LeBron.

        And yes, as compared to the NFL, the smaller number of total participants may color that analysis.

  3. I’m curious to see how this ultimately plays out over the long-term. I suspect that what will happen is that college sports are going to end up becoming incredibly top-heavy like they were in the 50s and 60s, when teams had dozens of scholarships and could stockpile players that would do nothing but sit on the bench for four years, but accepted it for the chance to get a national championship ring. “Name” colleges are going to end up attracting even more high-end players than they already do, because the booster networks are going to be working with the business community to openly compensate players. There’s going to be blatant bidding wars for talent, because they’ll be able to legally do something akin to SMU buying Eric Dickerson a Camaro through a local dealership, and just say that it’s part of an endorsement deal (as long as he commits to the school, he gets to keep the car).

    1. That is exactly what is going to happen. The NCAA did this as a way to have more parody in competition. All this will do is reduce parody, hurt the product and likely make everyone worse off. Restraints on the right to contract generally do that. If these agreements were not in the best interests of the parties as they are, they wouldn’t have been made in the first place.

      1. Okay, not trying to pull a “lol, typo, your argument is invalid” here, but that typo is hilarious. “Parody in competition”. C’mon, that shit’s funny.

        1. So sue me. The point still stands. All these restrictions are are a salary cap to ensure there is good competition and not just a few schools who dominate at the top.

          1. I quite clearly said I wasn’t trying to use the typo against your point, I just thought the typo, on it’s own merits, was funny.

        2. >>“Parody in competition”

          2019 Miami Dolphins

  4. What?
    Taxing income?
    Who could be so demonic as to introduce such a nefarious idea?

  5. There’s some nuance, but generally speaking, when a scholarship goes beyond tuition and direct education expenses (for example, if you’re using a scholarship to pay for room and board) it is taxable. It’s just that most students relying on scholarships and financial aid aren’t going to make enough to be taxed.

    That said…

    On average, the four-year price tag at a private institution amounts to $147,204, while an out-of-state student at a public institution pays $90,308.

    So $22,577 to $36,801 a year in “income”? Even ignoring the education deduction and going for the standard deduction, that gives us ~$10k and ~$24k if filing singly, or $4k and $18k if filing head of household.

    From the 2018 tax tables, that gives us a tax burden of $1,000 to $2,600 (if filing singly) or $400 to $2,000 if filing as head of household.

    So to answer the question:

    Who would be able to pay income taxes on that enormous lump sum

    Most of them.

    If you want to argue that $2,000 is too much taxes for a college student, do so, but don’t try to imply it’s a huge amount when it’s a pretty tame amount.

    All of which is to say, it’s probably a bad idea to tax scholarships as income, even to the degree that we already are. But the facts are bad enough, you don’t have to obfuscate and imply this way.

    1. It is a huge amount if the student otherwise has no cash income and is otherwise cash poor. The scholarship may be worth a lot of money but it is not tradable in whole or in part to raise money to pay the taxes.

      1. it is not tradable in whole or in part to raise money to pay the taxes.

        Right. So the schools will have to increase the scholarship value sufficient to pay the tax.

  6. On what basis (other than FYTW) does the federal government think it can dictate the rules of the NCAA? What’s next…deciding what uniform colors the Dolphins can wear, how big the strike zone should be, what cartoons the goalie can display on his mask?

    1. If the students are employees the collages should do withholding and pay matching taxes , federal , state,, city, workers comp, S,S, . The whole ball of wax. Treat them like all other businesses .

    2. When the NCAA decided that college athletes were professionals and can be paid as such, those athletes became the same as those in professional sports. I believe that professional athletes pay taxes on income. A college tuition has value, and is offered to that athlete as compensation for his or her participation. So it is income, and can be taxed.
      If someone gives you a free car to do something and the IRS gets wind of it, expect a call.

      1. A college tuition has value, and is offered to that athlete as compensation for his or her participation. So it is income, and can be taxed.

        And this applies to all scholarships, correct?

        1. It should for any that are a form of compensation.

          “Engage in this non-academic activity or lose the scholarship” would be the easy rule. Alternatively if athletes could quit their teams and just be students, without losing the scholarship, it shouldn’t apply.

      2. Except scholarships have never been taxed before. Does a college tuition only have value for athletes? Lots of scholarships are offered in exchange for participation in something else, like an internship, or as a prize for winning a contest or competition

        1. Furthermore, why limit it to only those offered as compensation, after all gifts valued at over $14,000 are considered taxable, but scholarships have never been lumped in with them before

        2. Except scholarships have never been taxed before.

          Yes they have. Lack of other income and education deductions often mean that students don’t end up paying much income tax, but that’s because the amounts involved, not because scholarships aren’t taxable income.

          1. “Yes they have. Lack of other income and education deductions often mean that students don’t end up paying much income tax, but that’s because the amounts involved, not because scholarships aren’t taxable income.”

            Exactly.

            All this talk about paying players is ultimately about ‘above and beyond’ sorts of remuneration.

    3. The Dolphins uniforms are butt ugly, so that is not example that makes your case.

      1. Well, they aren’t really pros….are they?

      2. i love the 70s look

    4. On what basis (other than FYTW) does the federal government think it can dictate the rules of the NCAA?

      They are (debating) dictating tax rules, not NCAA rules.

  7. Since when is free tuition equivalent to earning a living?

    They are getting something of value in exchange for their labor. Do we really have to teach basic economics to you?

    If we want better tax policy we should apply taxes to everyone. Individual exceptions reduce pressure for broader reform.

  8. kill (not feed, der) the NCAA related to the major sports and let the pros have everyone @18. if NFL needs a minor league it shouldn’t be tied to Kansas State (go Cats)

    1. A nice thought experiment. Of course the obvious answers tell you exactly why pay to play would be taxed.

      Because it’s all a business – starting with the NCAA and working down through every level.

  9. Sen. Richard Burr’s proposal would heavily deter any student-athlete from getting paid.

    What a dick burr.

  10. “If college athletes are going to make money off their likenesses while in school, their scholarships should be treated like income.”

    I’m shocked that the IRS doesn’t already treat all scholarships as income.

  11. >>>But anyone who has attended college on scholarship knows this is patently absurd. Since when is free tuition equivalent to earning a living?

    Billy didn’t wait tables and bartend for his college education?

    1. Billy hasn’t ever earned anything in his life.
      Being given is not the same as earning.
      Many, many white collar workers don’t earn a damn thing… but they are given an income

  12. Who would be able to pay income taxes on that enormous lump sum when he or she has no guaranteed income other than a potential revenue-sharing check split countless ways?

    After deductions for tuition, etc. it would be a wash anyway. And it may make the athletes technically employees, which would come with a whole host of red tape for the university.

    The legislation will go nowhere so it’s got that going for it.

  13. Since when is free tuition equivalent to earning a living?

    Kinda funny that earning a living is what deserves taxation and not a (merit-based) gift.

  14. I can understand considering scholarships in general, all of them, as income.

    What I don’t understand is limiting that aspect only to athletic scholarships, or even just those athletic scholarships whose recipients get additional income from endorsements or even outright pay.

    Why not extend it retroactively? If you get paid after graduation for a skill you learned under scholarship, is that scholarship not an investment which government almighty should tax?

    But I do get the general picture. Government is good only at being stupid, and here’s another example of good-for-nothing-else lumps getting a government job so they can demonstrate government stupidity.

  15. The cognitive dissonance is baffling.

    If we tax the free admission to a state-run school, is that a tax or eliminating a subsidy?

    Considering the money was nominally supposed to be for education and these kids’ futures appears to be entertaining the Chinese, I’m not entirely sure Burr is 100% in the wrong here.

  16. I’m amazed that nobody seems to be looking at the problems.

    Why would, say, offensive linemen bust their butts to protect the QB who will be likely getting paid when they, most likely, will not be? Why would a QB ever hand off the ball to a RB when they could make more money if they make the big play?

    If all of the players aren’t making money, then you’re looking at a petri dish for problems.

  17. Is this just another problem with the “tax write-offs” – politically picking the winners and losers? I still vote to eliminate all “write-offs”.

  18. There are bad ideas, and then there are spectacularly bad ideas. This idea, taxing athletic scholarships, is the latter. I feel the NCAA made a terrible decision here. It will change the nature of amateur sports in college.

    1. How so? The athletes were already being paid, just in company vouchers, since they live in company towns.

  19. Is a scholarship compensation for work done in lieu of cash? If so should it be taxable income. Is playing sports simply a barter for a wage?

    1. If so should it be taxable income.
      Generally speaking, it is.

  20. Seems this is educational; it’ll teach kids to play in low-tax states.

  21. Hummm??? So this means if you get a REAL Scholarship because you are smart you will have to pay on it? Nope, makes little sense. Tax their INCOME because (well) it is income… Of course the surprise here is that it was SO CALLED Republican that came up with this bright idea. Usually it is the Democrats that want to tax everything.

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