Month: August 2016

This week we’ve got updates on tax and budget news in Oregon, Louisiana, Nebraska, Alabama and California. Be sure to check out the What We’re Reading section for links about the latest on Kansas, an editorial from the Wall Street Journal and a new report from The Brookings Institution. Thanks for reading the Rundown! 

— Meg Wiehe, ITEP State Policy Director, @megwiehe 

• With rising costs currently projected to outpace new revenue, Oregon faces the challenge of cutting $1.35 billion in services from the 2017-2019 budget or raising additional revenue. Taxpayers will have a significant say on this matter in November as they decide the fate of ballot Measure 97 (formerly IP 28), a proposed increase to the corporate minimum tax on large businesses. 
• Although Louisiana lawmakers held three sessions in 2016 to resolve several budget deficits, their solutions will provide only momentary relief as the state is projected to face a $1.5 billion deficit in 2018 when many of the temporary taxes passed this year expire.   
• The new fiscal year in Nebraska is off to a sputtering start, with revenues already running 7.6 percent behind the forecast, contributing to rumblings about a special session this fall to balance the books before legislators start debating the next two-year budget in January. State agencies are already being told to identify potential 8-percent cuts for that upcoming budget cycle. Unsurprisingly, none of this has deterred the state Chamber of Commerce from calling for further tax cuts that would only make these matters worse. 
• Alabama‘s legislature convened this week to begin its special session on the state’s $85 million Medicaid funding gap, the governor’s proposal to create a state lottery system to fill that gap, distribution of settlement money from the BP oil spill, and possibly raising the state’s outdated gas tax. Keep an eye on the Tax Justice Blog for more on these developments later in the week.

• A proposed bill to exempt Olympic medal bonuses from the income tax went nowhere in California this week, but legislation to temporarily exempt diapers from the sales tax was approved by the legislature and awaits the Governor’s approval.  

 What We’re Reading…    

• Kansas Center for Economic Growth’s Duane Goossen spells out the unavoidable pressure point Kansas has been marching toward—whether to cut services even deeper or raise revenue. 
• The Wall Street Journal‘s Editorial Board comes out against what it creatively calls “regressive taxation”–you know, income transfers “from the private economy to the privileged government class.” 
• The Brookings Institution released a report outlining the challenges states face when relying too heavily on oil, natural gas, and coal taxes. 

If you like what you are seeing in the Rundown (or even if you don’t) please send any feedback or tips for future posts to Kelly Davis at kelly@itep.org. Click here to sign up to receive the Rundown via email.

A legislative study of Mississippi’s tax code kicked off recently, with committee members giving special consideration to cutting overall taxes in the state and shifting away from the state income tax toward a “user-based system” (i.e. a heavier reliance on regressive fees and consumption taxes).

We’ll have data to share next week on why shifting away from the income tax is a bad deal for Mississippians, but for now we’ll just weigh in on the idea being pushed by some Mississippi lawmakers that the outcome of the study should be further cuts to Mississippi’s already ailing revenue system.

As we wrote in this space in April, the Mississippi legislature passed a massive tax cut just this year despite already being in a significant fiscal bind caused in large part by tax cuts approved in prior years. The capital city newspaper even ran a front-page plea to “stop the madness,” but lawmakers passed the tax cuts anyway. A common saying defines insanity as doing the same thing over and over again and expecting a different result, and the Clarion-Ledger’s “madness” diagnosis seems even more apt now, with some lawmakers pushing for even more tax cuts despite mounting evidence that revenues are repeatedly falling short of needs and haven’t even recovered from the Great Recession yet.

For one example, consider that budget cuts were so bad in Mississippi this year that the state laid off people it had hired to process income tax payments. When tax revenues are so bad you can’t afford to open the mail containing your tax revenues, you do not need more tax cuts. This is like throwing your paycheck away so you won’t have to pay your bills, a self-destructive cycle to say the least.

One may even wonder whether the reckless tax-cut crusade by some in Mississippi is better described as crazy or criminal. But in a sad twist of irony, there isn’t much difference between the two in Mississippi anymore, as budget cuts cause by tax cuts are driving more and more Mississippians in need of mental health services into the prison system instead.

But the good news is that these troubling behaviors in the Mississippi legislature are a clear cry for help. Next week, we’ll explain why shifting reliance away from income taxes is a raw deal and suggest some alternative tax reform ideas lawmakers should be considering if they truly want to improve tax fairness.

Trump Child Care Tax Break: Good PR, But Bad Policy That Will Do Nothing for Low-Income Families
Presidential candidate Donald Trump earlier this week announced a child-care tax break that offers nothing to the lowest-income, most vulnerable families, despite his claims to the contrary. Read more

Neither Trump nor Clinton’s Tax Plan Would Simplify the Tax Code
As this fall’s general election campaign gears up, it’s increasingly clear that the two major-party presidential candidates either aren’t prioritizing tax simplification (in the case of Hillary Clinton), or are only pretending to do so (Donald Trump). Read more

Trumps Tax Plan Raises More Questions Than It Answers
The Republican presidential nominee now embraces the higher personal income tax rate structure proposed by House Speaker Paul Ryan, and he also proposes a new tax break for child care expenses. Overall, however, the campaign has left many questions unanswered by releasing only limited details. This may be a deliberate strategy or a sign that the campaign has not fully fleshed out a revised proposal. Read more

Something Has to Give: Sustainable Revenue for Infrastructure Requires Gas Tax Increase
Louisiana hasn’t raised its gas tax in more than two decades, and it’s paying the price. The tax has lost 47 percent of its value. In written comments to the state’s gas task force, Carl Davis makes a sound policy argument for increasing the state’s gas tax. Read the comments

State Rundown: Avoiding a Race to the Bottom
This week’s Rundown features a troubling multi-state trend that would help shield the country’s wealthiest taxpayers from paying state income taxes, a message from voters about the Kansas tax cut experiment, and potential special sessions in Minnesota and Alabama. Read the Rundown here.

Puerto Rico and Section 936: A Taxing Lesson from History
Repealing the Possession Tax Credit was one of the few corporate tax-reform achievements in the 1990s. Bringing it back would be an expensive move in exactly the wrong direction. What you need to know.

If you have any feedback on the Digest or tax stories you’re watching that we should check out too please email  kelly@itep.org
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For frequent updates find us on Twitter (CTJ/ITEP), Facebook (CTJ/ITEP), and at the Tax Justice blog.

Tax simplification is usually a goal that everyone
can agree on. It makes filing taxes easier for the general public, and makes it easier for tax administrators to effectively enforce tax laws. Yet as this fall’s general election campaign gears up, it’s increasingly clear that the two major-party presidential candidates either aren’t prioritizing tax simplification (in the case of Hillary Clinton), or are only pretending to do so (Donald Trump).

When Trump introduced elements of a revised tax plan earlier this week, he led with the boast that “tax simplification will be a major feature” of his plan. But during his speech, Trump outlined a series of changes that would either leave the complexity of our tax system unchanged, or make it substantially worse. In fact, the most prominent new feature of Trump’s tax platform, a new deduction for child-care expenses, now appears to be one of the more convoluted tax cut proposals to be unveiled by any presidential candidate this year.

Trump’s idea to allow “parents to fully deduct the average cost of childcare spending from their taxes,” seems reasonable. But the tax code already allows provides a generous tax credit for certain child care expenses. Would Trump’s plan repeal the credit to prevent taxpayers from “double dipping” by claiming a tax credit for childcare spending that was exempt to begin with? Or, since Trump’s new deduction could be less generous than the existing credit, would families be allowed to choose which one works better for them? And what does “the average cost of childcare” mean anyway?

In the wake of Trump’s speech, the campaign released more details on the structure of the child care tax break, in language that appears to have been cribbed from a cocktail napkin:

The child care exclusion will be an above-the-line deduction. Capped at the amount of average care costs in state of residence for age of child. Low-income taxpayers able to take deduction against payroll tax. The plan is structured to benefit working and middle class families, and more detail will be rolled out soon after the plans [sic] other elements.

Suddenly the idea doesn’t sound so simple. In fact, the campaign’s language makes clear that to claim this tax break, any family would need to look up the average child care cost in their state for the number of children they have.  And low-income families would face a new administrative challenge, adding information about their payroll taxes to their income tax forms.

In fairness, Trump appears to have something else in mind when he says he wants to achieve tax simplification. Trump’s speech mentioned that he would “reduce the current number of brackets from seven to three and dramatically streamline the process.” But this is a non-sequitur. The complexity of the tax filing experience has virtually nothing to do with the number of tax brackets. Right now, calculating your income taxes involves looking up a number in a table prepared by the IRS. That process would not change at all if there were four fewer brackets. Equating tax simplification with fewer brackets is, to put it simply, a canard.

Unlike Trump, who pays lip services to simplification but then proposes tax changes that wouldn’t achieve it, Secretary Clinton doesn’t even pretend to be interested in achieving simplification. But there’s a straightforward reason for this. Clinton’s main objectives in tax reform appear to be raising new revenues, and doing so in a way that leaves middle- and low-income families unaffected.  Clinton would, in the name of fairness, enact a series of targeted tax hikes, each of which is carefully designed to only affect the best off Americans. But this second goal—holding middle-income families harmless—can only be achieved by drawing lines in the tax code between those who will pay more and those who won’t. Such lines can’t be drawn without making the tax system a little more complicated.

To be sure, for those earning less than $250,000 a year, these changes won’t have any material effect on the complexity of tax filing. But for those over this level (or, more accurately, for the tax preparers they hire), filing taxes will become more complicated. And Clinton’s choice to achieve this goal through several partially-redundant tax changes—capping the benefit of itemized deductions, creating a so-called “Buffet tax” with a 30 percent minimum tax on the wealthy, and adding a high-income surtax—would clearly achieve her progressive revenue-raising goals in a way that is unnecessarily complicated.

From this perspective, Clinton’s apparent lack of interest in tax simplification becomes at least somewhat understandable: sometimes, simplicity conflicts with other equally important tax reform priorities. In a setting of chronic budget deficits, it’s easy to see how revenue-raising can trump the objective of simplifying the tax system. But through this same lens, Trump’s plan seems even more incomprehensible. Trump’s plan would likely add as much complication to the code as any of Clinton’s plan—and, unlike Clinton, would do see in a way that middle- and low-income families would experience directly. Neither candidate’s tax plan, in the end, is at all friendly to the goal of tax simplification. But the Trump plan would make the process even more complicated for the very low-income families he professes to want to help.

Donald Trump’s advisors have tried to spin his economic address earlier this week as yet another reboot of his campaign and of his tax reform plan.

Trump’s speech, coupled with the abrupt disappearance of his original tax plan from his campaign website, made it clear that his original tax plan has been “fired.”

He now embraces the higher personal income tax rate structure proposed by House Speaker Paul Ryan, and he also proposes a new tax break for child care expenses. Overall, however, the campaign has left many questions unanswered by releasing only limited details. This may be a deliberate strategy or a sign that the campaign has not fully fleshed out a revised proposal.

Among the unanswered questions:

1) How aggressively will Trump seek to close corporate loopholes? Even at the current 35 percent rate, U.S. corporate taxes are lower than those of most economically advanced/OECD nations. If the United States cuts its corporate tax rate without broadening the tax base, the nation’s corporate tax collections would spiral down and blow an even bigger hole in the federal budget. Corporate tax collections, mind you, are already at historically low levels. Under a best-case scenario argument for cutting the U.S. corporate income-tax rate, the U.S. would have to also aggressively close corporate loopholes and perhaps could settle on a revenue-neutral rate of 28 percent. But Trump proposes to drop the rate far below that level without closing even a single corporate loophole.

2) What about individual tax breaks? The personal income tax is equally riddled with unwarranted loopholes, and any sensible tax reform strategy must discuss how to deal with the elephant in the room: itemized deductions for mortgage interest, charitable contributions, and other expenses. Trump’s revised blueprint is silent on this point.

3) How would the revised Trump plan affect federal revenues—and the budget deficit? This is an area in which the contrast between Trump and his general election opponent, Hillary Clinton, has been most stark. Trump has proposed to cut taxes by $10 trillion over a decade, while Clinton’s plan would reduce the federal deficit somewhat over this period.

These blank spots notwithstanding, the dramatic reductions in tax rates outlined by Trump—a 15 percent corporate tax rate, a top rate of 33 percent for most individual income, a 15 percent rate on pass-through income, and the outright repeal of the estate tax—are a clear indication that no matter how aggressively Trump seeks to close loopholes, his plan overall would be a budget-busting giveaway to the best-off Americans.

Tax reform is never easy, but some parts are more painless than others. The easy part is cutting tax rates, and on this front the Trump plan is quite clear. Trump would repeal the estate tax while sharply cutting personal and corporate income tax rates.

The hard part of tax reform is paying for tax cuts: which tax breaks will be eliminated to make rate reductions affordable? And on this point, Trump remains virtually silent. Indeed, the biggest loophole-related change he announced this week is the full expensing of capital investments, which would create a giant new hole in the tax base. Until Trump provides more specifics on the hard work of loophole closing, the collection of ideas he presented this week may fit into the mold of a hyperbolic slogan, but it’s certainly not a real plan.  

This week’s Rundown features a troubling multi-state trend that would help shield the country’s wealthiest taxpayers from paying state income taxes, a message from voters about the Kansas tax cut experiment, and potential special sessions in Minnesota and Alabama. Also, be sure to check out the What We’re Reading section.  Thanks for reading the Rundown! 

— Meg Wiehe, ITEP State Policy Director, @megwiehe

• A New York Times report shows the troubling race to the bottom between a number of states including Alaska, Delaware, Nevada, New Hampshire, Ohio, South Dakota, Tennessee, and Wyoming – to attract trust funds controlled by the wealthiest Americans. States are doing so not only by slashing  taxes on such funds, but also by putting up barriers to protect the elite from child-support claims, divorce settlements, and the attempts of other states and the federal government to collect taxes owed.

• Tennessee officials are attempting to create marketplace fairness between online retailers and brick-and-mortar stores via a rule change that would require out-of-state sellers to collect state and local sales taxes. But opponents to the rule worry that other states will follow suit and level the playing field in their states as well – let’s hope they’re right! 

• Alabama Gov. Bentley has released his proposal for a constitutional amendment creating the state’s first lottery. The amendment would create a lottery commission but would not authorize casino gaming or affect “traditional bingo.” The legislature convenes Monday for a special session focused primarily on the lottery proposal, and lawmakers may also discuss the state’s outdated gas tax. 

• Recent primary elections point to a changing landscape for fiscal policy in Kansas in January 2017, as 14 supporters of Gov. Brownback’s failed tax policy lost their races. Whether those seats ultimately are filled by more moderate Republicans or Democrats, the new lawmakers are not likely to be advocates of the governor’s tax cuts, which presents an opportunity for the state to reverse course.
• Minnesota may have another chance to pass critical tax and public works funding bills during a special session  if the governor and legislative leaders can reach a deal regarding metro transit. State leaders resume talks this Friday.  

• Missouri voters will decide on two different cigarette tax increases in November after both measures were approved for the ballot this week. One is a 60-cent-per-pack increase that would raise more than $300 million, primarily for early childhood education. The other is a 23-cent increase that would raise $95-$103 million for transportation infrastructure funding.

• After reiterating her commitment to her no-tax pledge in the face of looming revenue shortfalls last week, New Mexico Gov. Martinez has now ordered state executive branch agencies to cut 5 percent out of their budgets and implement the cuts immediately.

What We’re Reading…    

• A Center for American Progress study found that an EITC expansion for workers without children would save billions each year by reducing crime and improving public safety.  
• Governing magazine summarizes state efforts to tax online streaming services such ase Netflix and Hulu and looks at Kalamazoo, Michigan’s turn to private donations for needed revenue. 
• Jared Bernstein in the Washington Post debunks the faulty correlation between the size of government and economic growth. 

If you like what you are seeing in the Rundown (or even if you don’t) please send any feedback or tips for future posts to Kelly Davis at kelly@itep.org. Click here to sign up to receive the Rundown via email. 

The U.S. general election kicked off this week, and that means we’re going to be hearing about a lot of tax proposals—some good, others very bad—from House, Senate, and Presidential hopefuls. While the Puerto Rican debt crisis has taken a back seat in politics due to political conventions and a contentious presidential race, there is some talk in tax circles about resurrecting a lucrative business-friendly tax benefit centered on the island: Section 936. This is a bad idea.

Also known as the Possession Tax Credit, Section 936 was a provision in our tax code enacted in 1976 ostensibly to encourage business investment in Puerto Rico and other U.S. possessions. Congress voted to phase out Section 936 in 1996, citing excessive cost and the very limited number of U.S. companies that received the tax break. In 2006, the phase-out was completed.

Section 936 worked by exempting from federal income tax profits earned by U.S. companies in Puerto Rico and other possessions (under certain conditions). Corporations were quick to set up subsidiaries in Puerto Rico, and massive tax-dodging and profit shifting soon followed.

Over the 30 year lifespan of Section 936, companies shifted billions in corporate income to their Puerto Rican subsidiaries to receive partial or full exemption from federal taxes. In the 80s, corporations had an estimated total of $8.5 billion in tax savings and, in 1987 alone, these profit shifting activities are estimated to have cost the Treasury Department $2.33 billion in revenues. In 1998, during the phase-out period of the credit and when corporations were significantly disinvesting in Puerto Rico, six companies had a total of $912 million in tax breaks thanks to Section 936.

Even while the credit reduced corporate tax bills, Puerto Ricans did not see a proportional benefit. In fact, Puerto Rico soon found itself stuck with the “finance curse,” which occurs when a nation’s political and economic institutions are increasingly oriented towards and co-opted by wealthy international elites to the detriment of its people.

This is evidenced by the discrepancies between corporate investment in Puerto Rico and the development of the island. Despite some economic growth, Puerto Rican per capita income remained less than 30 percent of the U.S. average and local unemployment remained more than double the mainland’s rate. Meanwhile, the firms located on the island enjoyed large profits and low tax bills. Pharmaceutical companies, by far the biggest beneficiaries of Section 936, enjoyed a $70,788 tax break per employee on the island in 1987. In general, when faced with the decision to make investments that maximized profits or promoted Puerto Rican development, firms overwhelmingly chose to pursue the former, eventually convincing the U.S. Congress that the costs of Section 936 greatly outweighed its benefits.

The possibility that Puerto Rico would suffer greatly from the finance curse was inherent from its beginning as a commonwealth. In 1952, Puerto Rico’s constitution was ratified. It included a severely shortsighted provision. Section 8 of Article 6 requires that the Puerto Rican government must make payments to reduce its public debt before paying any other expenses, including the funding of basic public services. From the start, economic institutions were working against the people of Puerto Rico.

Despite Section 936’s shortcomings, some U.S. legislators, backed by corporate lobbyists, are considering reenacting it. They argue that such a step is necessary in light of Puerto Rico’s current debt crisis. But such a step would be like putting a Band-Aid on a bullet wound with the bullet still inside the body. It may look nice from the outside, but the heart of the problem is merely covered up.

There are much better policy solutions to Puerto Rico’s debt crisis that will create sustainable growth. One option would be for the U.S. to expand the Earned Income Tax Credit (EITC) to include Puerto Rico, which it currently does not. Expanding the EITC in this way could encourage low-income and out-of-work Puerto Ricans to enter the labor force and help Puerto Rican businesses through higher demand for their products and services.

More broadly, Puerto Rico needs to embrace public investments, not new corporate tax breaks, as the best way toward economic development. To this end, the U.S. government needs to give Puerto Rico the ability to fully fund critical public investments rather than subjecting it to continued austerity policies to satisfy U.S. hedge funds and other wealthy investors that have bought Puerto Rican bonds cheaply and hope for a windfall if the bonds are redeemed at their face value.

Repealing the Possession Tax Credit was one of the few corporate tax-reform achievements in the 1990s. Bringing it back would be an expensive move in exactly the wrong direction.

Aaron Mendelson, a CTJ intern, contributed to this report.

Presidential candidate Donald Trump today announced a child-care tax break that offers nothing to the lowest-income, most vulnerable families, despite his claims to the contrary.

During a speech today in which he revealed the plan among other economic proposals, Trump said his economic policies are designed “especially for those who have the very least.”  But his proposed child-care tax break is incredibly light on details and, to the extent that it can be analyzed, it appears it will offer poor and even some middle- and upper-income families nothing.

Let’s start with those near (or below) the poverty line. The federal income tax is already designed to exempt most poor families. This doesn’t mean these families pay no taxes, of course—far from it. But it does mean that families earning too little to pay federal income taxes—including virtually all those living below the poverty line—can gain nothing at all from Trump’s plan to exclude child care expenses from taxable income.

Middle- and upper-income families are already eligible for a federal tax credit for dependent care expenses. The plan could benefit these families only if this new tax break is in addition to the existing credit. Again, the plan offers no clarity on this point. If the plan’s intent is to allow families to “double dip” by both excluding their child care from income taxation, and then taking a credit for the same expenses, it would offer a substantial—and likely regressive—income tax break for better-off families. If, however, the child care credit would be replaced with the deduction, then middle- and upper-income taxpayers could potentially get less help.

From a fairness perspective, Trump’s new exclusion would likely flip the existing tax break on its head. Right now, lower-income families can claim a credit for up to 35 percent of their expenses (up to a capped amount), and that percentage gradually drops to 20 percent for better-off Americans. By contrast, income tax exclusions of the sort Trump has proposed would pay for a higher percentage of child care expenses for high income families, since the tax savings would depend on their marginal income tax rate.

What makes this especially egregious is that this is an area where there is room to improve the tax system. Child care expenses can be a daunting financial burden for low-and moderate-income families. Simply making the federal credit refundable would help millions of families with children.  By choosing to create a new tax break that abandons the best features of the current child-care tax break rather than fixing its problems, Trump has missed an opportunity to truly help “those who have the very least,” as he claims he wants to do.

In the Tax Justice Digest we recap the latest reports, blog posts, and analyses from Citizens for Tax Justice and the Institute on Taxation and Economic Policy. Here’s a rundown of what we’ve been working on lately.

Ridiculous Olympic Tax Break Would Complicate the Tax Code
As thousands of athletes compete in the Rio Olympics later this week, U.S. lawmakers appear to be competing for the most ridiculous legislative tax proposals. One gold medal contender is Sen. Chuck Schumer (D-NY), whose proposed plan to make cash prizes won by Olympic athletes exempt from the federal income tax. Read our take here.

Fiscal Policy Shake-up Comes to Energy States
The sharp decline in oil and other energy prices in recent years has saved consumers hundreds of dollars annually at the pump but also has left states that rely on energy-sector revenue clamoring to come up with policy ideas to make up for lost revenue. Here’s Aidan’s full piece.

Microsoft’s $39 Billion Tax Holiday Continues–But Ratings Agency Cries Foul
Stern warnings from credit rating agencies are generally not shrugged off lightly. Yet Microsoft has a straightforward, if crass, reason for ignoring Moody’s advice: tax avoidance. Matt’s analysis is here. 

Treasury Regs Aim at Ending an Estate Tax Dodge for the Very, Very Wealthy
Earlier this week, the U.S. Treasury Department proposed new regulations designed to prevent wealthy business owners from avoiding estate tax liability by artificially undervaluing their assets. Since congressional action does not appear to be forthcoming, Treasury’s draft regulations are an important step in preserving the estate tax. What you need to know about the new regs. 

State Rundown: Looming Revenue Shortfalls and Short-Sighted Tax Reform Talk
This week’s Rundown features a reiterated commitment to no new taxes in New Mexico, talk of a special revenue session in Oklahoma, tax debates in Mississippi, and a looming budget shortfall in Missouri. Read the Rundown here.

If you have any feedback on the Digest or tax stories you’re watching that we should check out too please email me kelly@itep.org
Sign up to receive the Tax Justice Digest

For frequent updates find us on Twitter (CTJ/ITEP), Facebook (CTJ/ITEP), and at the Tax Justice blog.

As thousands of athletes compete in the Rio Olympics later this week, U.S. lawmakers appear to be competing for the most ridiculous legislative tax proposals. One gold medal contender is Sen. Chuck Schumer (D-NY), whose proposed plan would make cash prizes won by Olympic athletes exempt from the federal income tax. Though the Senate passed the bill through unanimous consent, the House won’t be able to vote on it until lawmakers return from recess in September (and after the Olympics are over).

The proposed tax break for Olympic cash winnings conveniently pops up every couple of years from grandstanding legislators. A bipartisan group of lawmakers championed an identical proposal before the 2014 Winter Olympics, with even President Barack Obama supporting the measure. In 2012, Sen. Marco Rubio and his counterparts in the House also proposed the Olympic cash prize tax exemption (puzzlingly, Rubio called the current tax code “a complicated and burdensome mess” in the same press release detailing his plan to add the Olympian tax exemption and thereby further complicate the tax code.)

These legislative proposals have been fueled by a fear-mongering 2012 press release put out by the Grover Norquist-led Americans for Tax Reform (ATR) asserting that Olympians could face up to $10,000 in taxes on their gold medal cash prizes. (The U.S. Olympic Committee awards $25,000 to gold medalists.) Politifact rated the claim as “mostly false,” since less than one percent of Americans pay the top tax rate of 35 percent that the ATR report falsely assumes.

There is no moral or economic case for exempting the earnings of Olympic athletes over other categories of workers. Is the work done by athletes really more important than that of computer programmers, doctors, firefighters, or soldiers?  Why exempt Olympic prizes while taxing recipients of the Pulitzer or Nobel prizes? It’s not the place of the federal government to decide whose profession is more valuable than anyone else’s, so Olympic athletes should receive no special treatment in the tax code.

The irony of the Olympic medal exemption proposal is that it is antithetical to the tax reform rhetoric coming from most lawmakers, which calls for the cleaning out of exactly these kind of special interest exemptions. In fact, the bill’s bipartisan support suggests that lawmakers on both sides of the aisle may be more interested in appealing to the public than in achieving true tax reform. Lawmakers would do better to pursue principled tax reforms that would raise revenue, decrease income inequality and close down pervasive corporate tax loopholes. If they did this, they would be truly deserving of a gold medal.