The Price of Olympic Victory

Credit: Time[/caption]

The entire world watched Michael Phelps earn enough medals in the 2012 Olympic Games to become the most decorated Olympic athlete of all time. It’s a huge accomplishment from someone who trained his whole life to be in the position he is in now, but what if being the winningest Olympian in the history of the modern games also means being the most taxed?

The athletes that excel in the Olympic Games don’t simply return home with medals around their necks. Each medal also earns competitors a cash honorarium. For each bronze medal an athlete wins they receive $10,000. Silver medals are worth $15,000, and taking home gold will come with a check of $25,000 from the U.S. Olympic Organizing Committee.

However, big wins for Team USA could also mean big wins for Uncle Sam. Current tax law treats Olympic earnings, prizes, and bonuses from endorsements the same as winning the lottery

Members of Team USA are required, by law, to add the value of their medals and honorariums to their taxable income. According to a report by Americans for Tax Reform (ATR), an organization committed to getting lawmakers to pledge they won’t raise taxes, our athletes are subject to a 35% tax rate, often referred to as the marginal rate, or the same rate as the highest tax bracket.

When the figures are broken down the report reveals that the athletes that do the best in London could pay close to $9,000 in taxes just for one medal. This sum is calculated by taking 35% of the value of a gold medal added to 35% of the honorarium received, and does not include taxes on endorsement bonuses.

According to the data from ATR, gold medalists would pay $8,986/medal, silver medalists $5,385/medal, and bronze medalist would pay $3,502/medal. This means Michael Phelps, as of today, would pay roughly $65,000 in taxes just for excelling in the events he has participated in. Collectively, Team USA would owe over $350,000 to the IRS.

It’s a big price to pay for victory. That is, if the ATR data is correct. Fact checks on the subject have revealed that their findings are “mostly false.” It is possible for some athletes to pay the 35% marginal tax rate, but unlikely for many of them.

Olympic athletes, like any other taxpayer, would have to gross around $380,000 during the year to pay the marginal rate.  The findings by ATR specificed that the marginal tax rate affects most athletes on Team USA, and indeed it would for the ones who have the most lucrative endorsement deals. However, not every athlete is fortunate enough to make the kind of money Michael Phelps does. In the end, the amount of taxes an athlete would pay on their achievements in the Games would depend on how well they are sponsored.

There are a significant number of people who will agree with the sentiment that the members of Team USA are representing the United States on a global stage and that their accomplishments from many years of training and preparation reflect well on the athletes themselves, and our country. The knee jerk reaction from the ATR data has caused many to respond with shock and anger that we would tax our athletes so much when many of them make so little. The report even caused some lawmakers to take action.

U.S Senator Marco Rubio (R-FL) and Rep. Blake Farenthold (R-TX) both introduced legislation on Wednesday in an effort to exempt Olympic athletes from having to pay taxes on prizes and awards they earn. Farenthold’s Tax Exemption for American Medalists (TEAM) Act and Rubio’s Olympic Tax Exemption Act would exempt most members of Team USA from having to pay taxes on medals and honorariums they receive, but money from endorsements and bonuses from sponsors would still be taxed.

This legislation comes months before a major general election in which tax reform will be among the more important issues for voters, especially independent voters, and during the current fight between Republicans in Congress and President Obama over extending the Bush-era tax cuts that are set to expire at the end of the year. The question of whether or not Olympic athletes should be taxed on their successes while representing this country is still worth addressing as long as we have all of the facts.

Neither bill would be considered until after the August recess, and by then most people in the United States won’t care about the Olympics or anything related to the Games. It will be the beginning of football season and people will have moved on.  Whatever political points lawmakers on Capitol Hill might gain from the news of this legislation will be diminished by then.

Most Americans will agree that the current tax system is a gigantic mess and needs reform. It is the type of reform needed that people disagree on. The “Olympic tax” keeps the debate fresh for the upcoming election season that will begin to intensify within the next couple of months. The issue of tax reform will likely be a high priority for the presidential candidates on the campaign trail as they try to win over constituents.