U.S. athletes have won a collective 90 medals at the 2012 London Games and that number will likely rise before the Olympics end on Sunday. Olympic winners will pay taxes to the IRS on their prize money but a new proposal would effectively lower Olympians' tax bill by eliminating all taxes on Olympic winnings.
Last week Florida's junior senator and rising Republican star Marco Rubio introduced The Olympic Tax Elimination Act and it has garnered bipartisan support including President Obama's stamp of approval. The bill could become law when policymakers return to Washington next month.
"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," said Rubio in a press release. "Athletes representing our nation overseas in the Olympics shouldn't have to worry about an extra tax bill waiting for them back home. We can all agree that these Olympians who dedicate their lives to athletic excellence should not be punished when they achieve it."
How much are medals worth?
Using current trading prices, a gold medal is worth about $675, a silver medal about $385 and a bronze medal is worth less than $5. The U.S. Olympic Committee also provides cash awards to winners: $25,000 for gold, $15,000 for silver and $10,000 for bronze. Gold medal winners may have to pay as much as $8,986 in taxes on their prize money, according to Americans for Tax Reform, an anti-tax lobbying group. Silver medalists have a tax burden of $5,385 and bronze medalists will pay $3,502. Olympic winnings will be taxed at the top income tax rate — 35 percent — only if that winner brings in at least $380,000 a year.
Should Olympic winners deserve preferential treatment from Uncle Sam?
Not everyone thinks so.
Republican Senator Tom Coburn of Oklahoma opposes the proposal, the only lawmaker to reject the idea. Coburn's spokesperson John Hart provided an explanation to Bloomberg:
"If tax code gymnastics was an Olympic sport this idea might get a medal," Hart wrote in an email. "I'm not sure taxpayers want to pay higher taxes to help beleaguered Olympic medalists who have to manage endorsement offers."
Olympic medals and prize money are a pittance to what athletes will score in endorsements. Olympians like Michael Phelps made $10 million in salary and endorsements last year and Forbes estimates that he will make as much as $100 million during his career. Phelps' swimming teammate and Olympic medalist Ryan Lochte reportedly has endorsement deals totaling $2.3 million this year and Olympic gynmanst Gabby Douglas will likely sign sponsorship deals in the $5 million to $10 million range after her historic performance in London.
Slate's business and economics correspondent Matthew Yglesias also criticized Rubio's Olymbic tax bill in a recent column, calling it "dumb," "pointless" a "tax gimmick" as well as smelling "like yet another effort to exploit the public confusion about how taxation of marginal income works."
Yglesias rebuts Rubio's assertion that Olympic athletes have an "extra tax bill" to pay on April 15. Whatever money Olympics athletes make from sporting events and endorsements, he argues, should be viewed exactly the same as any other form of income. In an interview with The Daily Ticker, Yglesias says Olympic prize money is no different than money given to Nobel Prize and Pulitzer winners, whose cash prize is also taxed by the IRS.
"The reality is we have an income tax in the U.S. [and] we've had it for a long time," he says. "It's one of the main ways we pay for Medicare, Medicaid, Social Security, the roads that we drive on. It's not about taxing success. What is so special about these Olympic athletes that they should be exempted from the general rule that if people make a lot of money they need to pay taxes on their income?"
Yglesias notes that politicians — not the athletes themselves — are pushing for the tax exemption. Many of the winners in the 2012 London games earn modest salaries but some, like the members on the 2012 U.S. Men's basketball team, are extremely wealthy, if not multi-millionaires. The tax checks these athletes write to the government are miniscule - "a drop in the bucket" - Yglesias notes, but Rubio's proposal hits at a much larger problem: reforming the convoluted and byzantine tax code.
"Politicians on both sides say they want a simpler tax code with less deductions, less crazy exemptions and lower rates for everyone," he says. But this bill would "create new exemptions and loopholes" and would make the nation's tax system "even more complicated."
Should olympic medalists be taxed on their winnings? Tell us what you think!