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Winning an Olympic Medal Can Be a Taxing Experience

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Although the 2014 Winter Olympics in Sochi have ended, some U.S. athletes will be reminded of their participation come tax time next year. Twenty-eight American athletes won an Olympic medal in the Sochi games (9 gold, 7 silver, and 12 bronze). Their margin of victory in many events was only a few seconds or points. But for most of these athletes, winning an Olympic medal will turn out to be a taxing experience in more ways than one.

The U.S. Olympic Committee awards medal-winning athletes cash prizes of $25,000 for gold, $15,000 for silver, and $10,000 for bronze. Unlike most other countries, the United States considers this taxable income, because the United States taxes all income earned, no matter where it was earned.

According to an analysis by Americans for Tax Reform, for those in the highest of the seven U.S. tax brackets (39.6%), it could cost a maximum of $9,900 for winning a gold medal, $5,940 for winning a silver, and $3,960 for winning a bronze. Even those in the lowest tax bracket (10%) could have to pay a maximum of $2,500 for a gold, $1,500 for a silver, and $1,000 for a bronze.

Rep. Blake Farenthold (R-Tex.) aims to change that. “This needless tax illustrates how complicated and burdensome our tax code has become,” he said. “We need a fairer system for all, and eliminating this unnecessary tax burden on our athletes is a good way to start.”

As the Olympics began, Farenthold introduced a bill in the House (H.R.3987) called the “Tax Exemptions for American Medalists Act of 2014” or “TEAM Act.” Section 2 reads,

(a) IN GENERAL. — Section 74 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

(d) EXCEPTION FOR OLYMPIC MEDALS AND PRIZES. — Gross income shall not include the value of any medal awarded in, or any prize money received from the United States Olympic Committee on account of, competition in the Olympic Games.

(b) Effective Date. — The amendment made by this section shall apply to prizes and awards received after December 31, 2013.

This is not the first time that such legislation has been introduced. During the 2012 presidential campaign — the year of the Summer Olympics in London — Sen. Marco Rubio pushed similar legislation. “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,” he said. “Athletes representing our nation overseas in the Olympics shouldn’t have to worry about an extra tax bill waiting for them back home.” Both Republican presidential nominee Mitt Romney and Democratic nominee Barack Obama expressed support for Rubio’s effort even as some Olympic athletes didn’t. With only seven Senate co-sponsors, Rubio’s bill never came up for a vote.

Because tax exemptions — such as tax credits, deductions, shelters, and loopholes — are always a good thing, Farenthold’s bill, although it will affect only a small number of persons, is a welcome sight: every penny of Americans’ income that is kept out of the hands of the federal government is a good thing. Only a statist who believes that the government has a claim on a percentage of all income produced and that tax exemptions deprive the government of what it is entitled to could object to Olympians’ keeping their monetary rewards in their pockets. But tax exemptions are not subsidies. The fact that not every American benefits from exemptions (or credits, deductions, shelters, or loopholes) the same way is irrelevant.

Even better than Farenthold’s bill are proposals by the Tax Foundation and other conservative groups to exempt all foreign-based income from U.S. taxation.

But conservatives and others who are willing to exempt the payments that come with Olympic medals from taxation win no medals when it comes to having any philosophical objections to the income tax itself.

Like liberals, conservatives are not opposed to taxation in principle or to the onerous uses to which taxes are put. Indeed, as Jacob Hornberger has argued, “The left–right debate in America over income-tax policy assumes the continued existence of the welfare-warfare state way of life, along with the continued existence of the income tax that funds this way of life.” Conservatives usually just prefer that more of the taxes collected be spent to fund U.S. military adventures around the world, law enforcement and national security, and the war on drugs than are spent on welfare programs and income-redistribution schemes.

Instead of just exempting from taxation income earned from winning an Olympic medal or earned outside the United States, why not exempt from taxation all income?

What is all income taxation but institutionalized and legalized theft by the federal government? As Murray Rothbard succinctly explains it,

Like the robber, the State demands money at the equivalent of gunpoint; if the taxpayer refuses to pay his assets are seized by force, and if he should resist such depredation, he will be arrested or shot if he should continue to resist.

What real difference does it make if one earns his income by working a 9-to-5 job, operating a business, doing free-lance work, selling shares of a stock, receiving interest on an investment, gambling at a casino, selling items on e-Bay, or winning an Olympic medal? It is all the fruits of one’s labor. The government shouldn’t have a claim on any of it. As Frank Chodorov wrote in The Income Tax: Root of All Evil (1954),

The citizen is sovereign only when he can retain and enjoy the fruits of his labor. If the government has first claim on his property he must learn to genuflect before it. When the right of property is abrogated, all the other rights of the individual are undermined, and to speak of the sovereign citizen who has no absolute right to property is to talk nonsense. It is like saying that the slave is free because he is allowed to do anything he wants to do (even vote, if you wish) except to own what he produces.

But not only is the income tax institutionalized and legalized theft, it is also a vast income-redistribution and social-engineering scheme. The minimal constitutional functions of the federal government don’t need an income tax to fund them. The current welfare-warfare state does. The argument for the income tax is really just an argument for a large and intrusive central government.

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