Tax Analysts Blog

Millions for Athletes, Not One Cent for Zika

Posted on Aug 22, 2016

Over the past two weeks, we cheered as American athletes won medal after medal at the Rio Olympics, reflecting outstanding performances by Team USA. At the same time our athletes were winning cheers for their achievements in Brazil, Congress was receiving hearty boos across the United States. In the latest poll, Congress earned record low scores for its failure to perform in Washington, with just 9 percent of  Americans approving of the job it is doing.

Perhaps one reason Congress earns such low marks is the penchant of its members to talk about problems without actually taking any action to solve them. In fact, Congress moves so slowly that if its current term were an Olympic race, both the House and Senate would have been lapped by snails (#lappedbysnails).

Fortunately, many challenges that the United States faces as a nation can be addressed – often more successfully – if Congress does nothing. For example, it took Congress nearly 15 years to agree on how to fix the serious flaws in its 2002 landmark education law, No Child Left Behind. Yet teachers across the country managed to educate a generation of millennials anyway. Leading from behind as it so often does, Congress finally enacted long-overdue changes to the law earlier this year.

Unfortunately, some challenges require coordinated action by the federal government, and a serious commitment that transcends merely giving speeches on the Senate floor. One such challenge is the threat to public health – particularly to the health of pregnant women and their unborn children – posed by the spread of the Zika virus. Yet when the Obama administration and career experts in public health asked Congress for $1.9 billion in emergency funding to combat this known and imminent threat, lawmakers adjourned for the summer without passing a bill.

When Congress wants to do something badly enough, however, it can move at the speed of light -- even if that something sets bad policy, creates other problems, is unpaid for, and helps only a few people, many of whom don’t need the help. I refer to the misguided election-year stunt in which congressional leaders of both parties propose to exempt from federal income taxation not only the value of the medals earned by U.S. Olympians, but also the $4.5 million in cash payments that 213 American medal winners will receive from the U.S. Olympic Committee.

The first lesson students learn in their first tax class in law school concerns section 61 of the Internal Revenue Code. That section defines gross income as “all income from whatever source derived.” And one of the first cases about section 61 teaches that even found money – treasure trove, in legal jargon – is income for tax purposes. It is clear that bonuses for outstanding performance earned by ordinary workers are also taxable. Many of those workers make enormous sacrifices, sometimes working two and three jobs, to provide for their families. If Congress wants to honor the sacrifices made by Americans who do extraordinary things, it should exempt those bonuses too. Unfortunately, ordinary workers who achieve world-class results rarely make the nightly news, and that kind of tax relief costs a lot of money.

There is something very wrong with our priorities as a nation when our elected officials fast- track tax relief for Olympic athletes – many of whom are well-paid professional athletes – and place funding for a serious threat to public health on the back burner. Congress should be ashamed of itself. 

Read Comments (7)

Edmund DantesAug 22, 2016

"lawmakers adjourned for the summer without passing a bill" after failing to overcome a Democratic filibuster.

There, I fixed it for you. You ought to tell the whole story, sir. The Republicans passed a bill in the House, which only failed in the Senate because the Democrats filibustered it--it probably had a majority of votes.

So you feel the value of the medals should be taxable, as well any cash received by the athletes? What value would you assign to them, given that they are priceless? I do not believe you can be serious.

When ordinary taxpayers learn that Olympic athletes will have to pay taxes on incidental income from succeeding in the Olympics, they lose still more respect for the IRS. Such taxation strikes most of us as patently unreasonable. That's why there was a bipartisan rush to exempt it.

Mike55Aug 23, 2016

Congress has been sparring with the Administration over Zika funding since late February. Portraying this as Congress not getting around to something important before a recess is a huge mischaracterization. Let's also not forget that Congress approved emergency funding for Ebola not that long ago; clearly it can put politics aside and act quickly in response to a global health crisis when necessary.

While I personally think the House is making a mistake and should grant the full $1.9B requested, that doesn't make it right to just straw-man away the opposing side's position.* Otherwise you're contributing to the partisanship that creates the very Congressional gridlock you're railing against.

*In a nut-shell: the House doesn't think Zika is severe enough to warrant "blank check" emergency funding. There position is bolstered by the fact that Zika is indeed far less severe than Bird Flu and Ebola (the last two cases where blank check emergency funding was granted). The counter-argument is that we know a lot less about Zika than the typical global health crisis, which generally consists of an unusually severe outbreak of a well understood disease, and that lack of knowledge is dangerous enough by itself to make this an emergency. Like just about every serious issue that divides the parties, there are no easy answers here.

JusticeTwoAug 24, 2016

Just a few reactions to the comments, to clarify the facts:
1. Congress, not the IRS, decided that gross income means all income. It is firmly established that this includes the value of property received for excellent performance (like the value of trips received by top salespeople in some industries, or prizes received by contestants on The Price is Right), as well as cash bonuses like the $4.5 million in payments to be made to Olympic athletes for earning a medal. If people are upset at this law, they should be upset at Congress, not the IRS.
2. To make this income not taxable, Congress must vote to exempt these items of income. And I fail to see why the 24 professional basketball players (11% of total US medal winners) should avoid taxation on their cumulative $600,000 in cash bonuses from the USOC, when a manager at McDonald's has to pay tax on her performance bonus. If the American public lacks confidence in anyone, it is Congress for creating a ridiculously complicated set of rules which, borrowing a phrase from Thomas Friedman, represents "the sum of all lobbies."
3. As for Zika, the House never voted on a "clean" bill to fund the fight against Zika. The bill they passed included a number of "poison pill" provisions completely unrelated to Zika -- e.g., defunding Planned Parenthood, cutting funding for the Affordable Care Act. No one should have been surprised by the filibuster. My point was that neither side thought it was important enough to move off of their talking points to actually accomplish something important for the public health. Hence, only 9% of Americans approve of the job Congress is doing.

Mike55Aug 25, 2016

"My point was that neither side thought it was important enough to move off of their talking points to actually accomplish something important for the public health."

But you're assuming away the difficult underlying question (i.e., is Zika a public health emergency?) to make your point. No one is debating whether fighting Zika deserves funding, the question is instead whether it requires special emergency funding. Many legislators feel Zika is NOT* a public health emergency. The same group of legislators acted in a speedy/bipartisan manner to pass legislation when confronted with an obvious public health emergency in the very recent past.

The sad reality is that there are a large number of serious diseases ravaging the developing world at any given time, so we need to be selective in deciding which ones require emergency action. I'm sure you could recite the horrors of Zika, but can you explain why it's so much worse than Dengue Fever? Or West Nile Virus? I think there is an answer to that, but let's not pretend it's an easy one.

*The mainstream media coverage of Zika has been vastly overblown due to the connection with the Olympics. This is not some right-wing Fox News conspiracy: you can read all about it in reliable/bipartisan publications, via carefully researched articles quoting public health officials from around the world (not just from Brazil).

JusticeTwoSep 1, 2016

Anthony Fauci described just how serious the Zika threat is to public health in the United States, in today's Washington Post. He explains in detail how Congress' inaction threatens the health and lives of our most vulnerable citizens .

Edmund DantesAug 26, 2016

No doubt all of the Tax Notes readers understand that IRS is only following the rules set by Congress. However, the general public does not know that (thanks, public education!), and so will understandably blame the IRS when unexpected and odd rulings come down.

I generally agree that cash received as a prize should be taxable. I completely disagree that the "value" of the medal should be taxable. That is the sticking point. How is the medal to be valued? By the price of its raw materials? By the total cost of manufacture? By the anticipated future income it may be expected to confer? By the joy of the recipient?

Also, what offsets are to be allowed against this income? Apart from the professionals, such as the basketballers, most of these athletes have had extraordinary training expenses to reach the Olympics, and these have likely been nondeductible. Rough justice would be served by simply making such prizes tax free.

Chris MoranAug 23, 2016

You seem to overlook how many Olympic athletes are also the workers you talk about. It would be awful and unworkable policy to tax them on the medals they receive. How could IRS assign a value to a gold medal? It could vary wildly depending on the athlete.

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