OK, so first of all I have to apologize to my son, who asked me if there was prize money in the Olympics. I pooh-poohed the thought of tainting the Olympics with prize money. But, apparently there is -- $25,000 for a gold medal; $15,000 for silver; $10,000 for bronze. Sorry. I was wrongish.
OK, so second, there is a firestorm in the blogosphere right now about the absolute unfairness of taxing Olympians -- yes, Olympians! -- on their winnings. So, of course the numbers going around are that the tax on a gold medal is $8,750 and that Missy Franklin (as of yesterday) would owe $14,000 for one gold and one silver. (She now has two golds and a silver as of Wednesday night, but let's stick with the $14k number.)
Now, obviously the Weekly Standard and all those who would lower taxes chose Missy as their poster child because she is young, freshfaced and adored by all (including me, who can't stop watching that Call Me Maybe video). But, I think the numbers are wrong, which are based on a 35% effective tax rate. Missy may not be in the 35% tax bracket. Before her race last night, I'm going to guess that her income for this year (2012) was whatever she got at the Olympics and nothing else. She is an amateur and wants to have no endorsements so she can swim for her high school, Regis Jesuit. (See why we love her!?!). So, as of yesterday at lunch, I'm guessing her total earnings were $40k. Because she earned under $53,500, her tax would be $3,315 plus 28% of $17,900, for a total of $8,327. Not $14k. And, if she took the standard deduction and the personal exemption, her taxes could be $5,597. And, Missy might decide to itemize to deduct a lot of things related to training and travel, reducing her bill even more, but I leave that to the individual tax specialists. (For amateur athletes, I'm guessing the Olympics is an "activity not engaged in for profit," but maybe not for professional athletes, but that's beyond the purpose of this blog post.) So, I would think the maximum she would pay would be closer to $5k than $14k for two medals. (Now she has earnings of $65k, so the bill will be higher.)
Leaving tax accuracy aside, the bigger philosophical question is whether those who bring home the gold should face a tax bill. There aren't a lot of great reasons to exempt the honoraria from tax besides symbolism. Yes, Olympians work extremely hard and most live with very little income while training. Yes, some have lucrative endorsements, like Phelps and Lochte, but most have zilch. But, lots of people work very, very hard, and they pay tax on their income. If I took the next four years off to write a book or invent something or go to medical school, I would have to pay taxes should the book or investion sell or I became a surgeon. The drive and determination of Olympians is very inspiring, but a lot of folks who pay taxes have impressive drive and determination also.
However, Senator Rubio has proposed legislation to exempt the winnings from taxation because taxing Olympic prizes "punishes success" and "punishes excellence." This reporter thinks Olympians shouldn't be taxed, just like military personnel who are deployed in a combat zone. Wow. Are the Olympics really akin to a combat zone? Are U.S. Olympians more like U.S. soldiers in a combat zone than U.S. soldiers who aren't in a combat zone and still pay taxes? Astronauts pay taxes. Listen, nobody loves the Olympics more than me or cries more when they play the National Anthem, but I'm not buying it.
As an analogy, Nobel Prize winners are taxed on their very large ($1.5M) prize. And, many Nobel Prize winners are plain old professors and researchers who have toiled away for years waiting for recognition. And, Nobel Prize winners make great, lasting contributions to society. But, since 1986, we've taxed them.
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