One of the biggest problem with our tax system in America, and here in California, is that it is overly complex and is filled with all kinds of special treatment for one group or another.  It is filled with subsidies, credits and exemptions — each of which, when it comes down to it, is a result of the politicians in Washington, D.C., or in Sacramento picking winners and losers.  Long has there been a movement to establish a “flat tax” system, where there is one tax rate paid by everyone, and no longer would those in political favor get preferential treatment in the tax code, nor would the tax code be used as a tool to manipulate the behavior of the people to the liking of the political class.  So while I appreciate that NASCAR gets a tax break, end it.  And while those who make rum get favorable tax treatment, that should end.  And if you want to make corn ethanol, that’s great — but you shouldn’t get a break on your taxes for it.

Of course, it takes a lot of commitment to truly support a flat tax — where the government treats everyone the same.  It seems like there will always be temptation to want to use the power of government to grant special favor.

I cannot think of a better, more contemporary example than the latest calls for U.S. Olympic Medal winners to be exempted from paying income taxes on their prizes.  There have been calls by politicians in Washington, D.C., and in Sacramento, to create a special exemption for these athletes — so yet more preferential treatment for certain people.

Let me first frame the issue a bit more.

Late last month, over on the Americans for Tax Reform website, the group put out a press release highlighting the high level of federal taxes that Olympic medalists might have to pay — saying that under certain circumstances a medalist might have to pay as much as $9,000 in federal income taxes because of their achievement (this is for a single award winner — Lord knows what it would be for, say, Michael Phelps).

ATR points out that based on today’s commodity prices, the value of a gold medal is about $675, silver medal is worth about $385 while a bronze medal is worth under $5.  There are also cash prizes given out to medal winners — $25,000 for a Gold, $15,000 for a Silver and $10,000 for a Bronze.

In putting out their release, the point being made by ATR was that our country’s taxation rates are way too high.

But now we are seeing a mad rush to embrace the idea of no longer taxing Olympic medalists at all for their medals and prize money.  While this certainly is certainly a “feel good” political idea, as a public policy move, I think it is a terrible idea.  At a time when we need to be moving away from special treatment within the tax code, this would add just one more category of people getting favorable treatment.  If Olympic medalists deserve a break, how about the winners of the U.S. Special Olympics?  Or how about ending the taxation on those Superbowl rings, or what if a Nobel prize winner is from the United States?

If we truly want to help out these medalists, then we should actually flatten the tax code, so that the tax liability for winning a gold medal is much more reasonable.

In the meantime, it’s fairly predictable to see President Obama embracing the legislation to exempt Olympic medal winners from taxation — and it is disappointing to see Mitt Romney apparently supporting it as well.

Not everyone in America is a superstar – that’s just the way that it is.  And our tax code should be written to give the same treatment to the person who is the neighborhood’s greatest locksmith, or my son’s greatest school teacher, that it gives to the world’s greatest swimmer, runner or beach volleyball player.

This entry was posted on Friday, August 10th, 2012 at 12:23 am and is filed under Blog Posts.