Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

“Majorities, as such, afford no guarantees for justice… They [are] … likely to be equally — perhaps more than equally, because more boldly — rapacious, tyrannical and unprincipled, if entrusted with power. There is no more reason, then, why a man should either sustain, or submit to, the rule of the majority, than of a minority.”     Lysander Spooner

August 8, 2012

What if President Obama Told Michael Phelps “You Didn’t Win That”?

by Stephen Littau

Like many people, I found the idea that athletes for Team USA receiving a tax bill for any prize money that goes along with a gold, silver, and bronze medal an outrage. These athletes worked very hard to get where they are. They made sacrifices. They spent many hours getting their bodies in shape so they might one day stand on the podium. Why should the IRS get one cent from any of this?

When I first learned of the bipartisan effort to correct this outrage with a bill dubbed the Olympic Tax Elimination Act, a tax cutting measure President Obama actually says he will sign, my first thought was that this is something all Americans should support. After giving this some additional thought, however; I couldn’t help but think of President Obama’s “you didn’t build that” line when he was extolling the virtues of government and how those who have been successful are only successful because “somebody else helped out along the line.”

If President Obama was being consistent, rather than supporting the Olympic Tax Elimination Act, he would say something like the following:

If you were successful, somebody along the line gave you some help. There was a great coach somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to reach your athletic potential. Somebody invested in roads and bridges that your parents drove on to take you to practices and competitions. If you’ve got an Olympic medal, you didn’t win that. Somebody else made that happen.

Notice, the above sentences are exactly what Obama was saying about successful business people except I replaced the business references with athletic references. Now imagine the president actually saying that these world class athletes didn’t earn these medals and that someone else “made that happen.” How would most logical thinking people respond to such a nonsensical statement? Even in this “everyone gets a trophy because everyone’s a winner” culture we have now, I would expect that most people would be put off by the president’s lack of appreciation for all the hard work that goes into becoming an Olympian who has reached the full potential of human athleticism.

What the president and his supporters fail to understand is that it’s not just Olympic athletes who work very hard to be the best at what they do. Businessmen and businesswomen who aspire to achieve the American dream make sacrifices, spend many hours educating themselves, and take risks so they might someday be financially secure. Why aren’t these job creators worthy of being celebrated like athletes representing Team USA? Why don’t these entrepreneurs deserve a tax break?

While I still support the Olympic Tax Elimination Act, I would prefer to one day see an Income Tax Elimination Act in my lifetime. No one should be taxed on earnings regardless of whether the earnings come from cleaning a swimming pool or from cleaning up with gold medals at the London Olympic Games in most of the swimming events.

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39 Comments

  1. He’d sound an awful lot like Romney saying that very thing in 2002 Olympics.
    youtu.be/6zSWm2qZ8Oc

    Comment by nbmskl — August 8, 2012 @ 12:10 pm
  2. The complexity of federal tax codes mostly results from pandering to special interests and from attempts at social engineering. The tax exemption for Olympic medal winners is a bit of both. I oppose special exemptions, including this one. The fact that the athletes worked hard is irrelevant. Many others work hard for their money, and they are taxed on every penny.

    Comment by MingoV — August 8, 2012 @ 1:20 pm
  3. The proposal to eliminate taxes on athlete’s earnings may be good politics. Yet to be seen. But it is without a doubt bad policy.

    Athlete’s earnings should be subject to the exact same tax code as my earnings are. To imply otherwise is ludicrious.

    Comment by phr3dly — August 8, 2012 @ 9:03 pm
  4. MingoV is spot on. More special interesting pandering enshrined in an already labyrinthine tax code is not what is needed.

    Although they shouldn’t be taxed on the value of the medal until they sell it, in my opinion. It’s not income until that point.

    And perhaps by that time, Stephen’s Income Tax Elimination Act will have been passed. I know, I know…but one can dream.

    Comment by mgd — August 9, 2012 @ 3:39 am
  5. They should be taxed on the medal at its fair market value, at time of receipt of the medal. If/when the medal is sold, the difference between FMV at receipt and at sale should be treated as a capital gain.

    If my company gives me a share of stock, I am taxed on that share of stock. There’s no reason to treat an olympic medal any differently.

    Of course it’s challenging to value an olympic medal, as it is challenging to value any low-volume illiquid asset.

    *That* is the issue that could use new legislation, and that is not limited to olympic medals.

    Comment by phr3dly — August 9, 2012 @ 7:25 am
  6. These are all valid points and the tax code should treat everyone the same (i.e. one tax rate for everyone). I believe this news surrounding the Olympic Tax Elimination Act can be a teachable moment as it can be used to illustrate why it’s wrong to tax individuals based on what s/he has achieved. Like I mentioned in the post, if the president was being consistent with his “you didn’t build that” rhetoric concerning the evil rich, he would be saying the same thing to these athletes. If it’s wrong to tax Michael Phelps based on his success, then it must be wrong to tax anyone else based on their level of success.

    Comment by Stephen Littau — August 9, 2012 @ 10:28 am
  7. With regard to the first comment linking the video from Romney in 2002:

    Sure there are some similarities. I don’t think many people would argue that these athletes did everything on their own without support from their families, communities, coaches, etc. To this extent, both Obama and Romney agree. The difference is though, that Obama gives the lion’s share of the credit for an individual’s success to those who supported the successful individual. Support can only carry someone so far. All the support in the world does not make someone successful if the individual doesn’t put forth the efforts required. To be the best requires outperforming others who are similarly talented who also work very hard.

    This brings me to another part of the president’s statement (that I didn’t use in the post) from the same speech:

    “I’m always struck by people who think, well, it must be because I was just so smart. There are a lot of smart people out there. It must be because I worked harder than everybody else. Let me tell you something – there are a whole bunch of hardworking people out there.”

    If you apply this statement to sports, it’s not too difficult to see how silly of a statement this is. In the NFL, there are 32 teams yet at the end of the season only one can win the championship even though all of these teams have “a whole bunch of hardworking people.”

    Comment by Stephen Littau — August 9, 2012 @ 10:58 am
  8. Obama should say something different to Michael Phelps, who’s the best athlete in the world.

    Comment by Chris Young — August 9, 2012 @ 10:59 pm
  9. Michael Phelps did not get to win all those Gold medals on his own. He had coaches that definitely helped him and teammates on the relay teams that helped him win some also. If it wasn’t for those people, Phelps would have fewer medals. And let’s take a look at the next sentence from Obama, that is left off by people taking his quote out of context:

    “The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together.”

    That sounds a lot like Obama is giving plenty of credit to the individual. However, Obama was also making a case for a large government, which is something I oppose, and also mistakenly gave too much credit to the government (the internet was created for the military, not for commerce). Obama was definitely trying to justify his Statist outlook.

    As for the one tax rate, that is morally wrong and regressive, as are just about every flat tax rate. Here in California, we no longer have a sales tax on groceries, which had been punishing those who made less.

    As for taxing Olympic Athletes, I say no. Most Olympic athletes give up so much to represent their country and even the prize money doesn’t come close to making up what has been sacrificed. The vast majority of Olympic Athletes never get rich or profit from the Olympics.

    Comment by JewishVampire — August 10, 2012 @ 6:25 am
  10. @JewishVampire:

    Regarding taxing athletes; that’s an interesting position to take.

    Military members “give up” far more than olympic athletes in service of their country. Should their earnings also not be taxed?

    Congressmen give up their homes, and their careers in service of their country. Should their earnings not be taxed?

    Teachers who bypass lucrative careers to help children give up quite a bit in service of their communities, and their countries. Should their earnings not be taxed?

    Athletes give up whatever it is that they give up voluntarily, and in pursuit of individual glory. There’s nothing wrong with that. Each of us makes similar choices. Just because they drape their accomplishments in the American flag does not make their endeavors any more worthy than the endeavors undertaken by the rest of us.

    Comment by phr3dly — August 10, 2012 @ 6:32 am
  11. “The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together.”

    Everybody loves a winner. Especially when they can benefit from the winner’s accomplishments.

    Comment by Not Sure — August 10, 2012 @ 7:08 pm
  12. @phr3dly:

    Many members of the military also join to make it a career or for the benefits that it will give them in the civilian field (monetary aid for college, training in a certain field, often free housing, low cost healthcare, etc.).

    How many members of congress “give up their homes”? Most keep their homes, not to mention the perks that come from being a member of congress (great healthcare, connections made, etc.). Many also profit from speaking fees, jobs in certain industries, and on and on it goes.

    Teachers also benefit greatly, even some idiots on the Right are doing their best to gut our educational system even further and take away the rights and benefits that teachers have.

    The thing is, the 3 fields you mentioned have the potential to be good to lucrative for many more people, both in raw numbers and proportionately, than it ever will for Olympic athletes. Here is a link that shows not only does Olympic “glory” rarely turn into financial success, it shows how all Olympic athletes owe their success to other people making sacrifices and/or helping them along the way:

    http://msn.foxsports.com/olympics/story/golden-dream-financial-nightmare-for-most-olympians-080712

    We actually talked about the Olympians being taxed and how that tax is detrimental to most Olympic athletes when they need every penny of any prize money they may earn on a local weekly radio show I co-host (we look at things more from the Classical Liberal view).

    Comment by JewishVampire — August 11, 2012 @ 8:13 am
  13. @Not Sure:

    Of course, everyone always loves a winner but Olympic athletes, even the great ones, did not achieve success on their own. Everyone had help and a lot of it.

    What usually separates the good ones from the great ones is that something extra, that additional drive to succeed, besides having more talent. But that talent has to be developed into skills and that is always the work of coaches, teachers, etc. As I pointed out above, Olympic athletes are dependent upon others making sacrifices and helping in order to succeed.

    Comment by JewishVampire — August 11, 2012 @ 8:19 am
  14. “Most Olympic athletes give up so much to represent their country and even the prize money doesn’t come close to making up what has been sacrificed.”

    You could say the same thing about people who start their own businesses.

    “The vast majority of Olympic Athletes never get rich or profit from the Olympics.”

    Lots of people who try to start businesses never get rich or profit from them, but they get taxed nonetheless. Why should athletes competing in the Olympics be treated any different for tax purposes?

    Comment by Not Sure — August 11, 2012 @ 2:20 pm
  15. @Not Sure:

    Apples and Oranges argument. People who start their own business are doing so specifically to make money. They give up a lot in the hopes of making money. People who are Olympic athletes generally are not in it to make money nor do they give up a lot in the hopes of making a lot of money.

    And people who start their own business are only taxed if they make a net profit. If they don’t then there is no tax to pay.

    Comment by JewishVampire — August 11, 2012 @ 3:40 pm
  16. “Apples and Oranges argument.”

    No, it’s not.

    “People who start their own business are doing so specifically to make money. They give up a lot in the hopes of making money. People who are Olympic athletes generally are not in it to make money nor do they give up a lot in the hopes of making a lot of money.”

    Different people are motivated by different things. Suppose someone starts a business with the intention of not making money, but helping people. And in the process, makes a lot of money. I guess he shouldn’t be taxed, right? I mean- he wasn’t in it to make money, was he?

    Comment by Not Sure — August 11, 2012 @ 4:08 pm
  17. “Different people are motivated by different things. Suppose someone starts a business with the intention of not making money, but helping people. And in the process, makes a lot of money. I guess he shouldn’t be taxed, right? I mean- he wasn’t in it to make money, was he?”

    While many people start their own business to help people and hopefully make money along the way, maybe not for a lot of money but still to make a living. They also do it for an ongoing process and want to make money as part of that ongoing process.

    I’m trying to figure out what appears to me to be animosity towards Olympic athletes.

    Am I to presume people think taxing tips is also okay even though it is a gift I give to whomever my server is? Should we tax all gifts now?

    Comment by JewishVampire — August 11, 2012 @ 4:13 pm
  18. And what about athletes who *do* want to make a lot of money? Some have, so clearly, some want to. Do you tax them differently from athletes who do it just for “love of the game”?

    Taxing people based on their motivations is a bad idea.

    Comment by Not Sure — August 11, 2012 @ 4:18 pm
  19. “Should we tax all gifts now?”

    Prize money is not a gift.

    Comment by Not Sure — August 11, 2012 @ 4:19 pm
  20. “I’m trying to figure out what appears to me to be animosity towards Olympic athletes.”

    I’m trying to figure out why you think some peoples’ incomes are more deserving of taxation than others.

    Last post… for now. :)

    Comment by Not Sure — August 11, 2012 @ 4:25 pm
  21. “I’m trying to figure out why you think some peoples’ incomes are more deserving of taxation than others.”

    We tax investment income at a lower rate that income that is earned even though it is the consumers earned income is what really greases and keeps the economy going and creates jobs. Since different people and different sources of income are already treated differently, then why not Olympic “prize” money, which is really a gift from the USOC.

    And I’m not talking about taxing people based upon motivations but upon the fact that the “prize” money doesn’t even compensate the athletes for what they have put in.

    Comment by JewishVampire — August 11, 2012 @ 4:29 pm
  22. Why tax income at all? IF taxes should exist at all, it should be in the form of a consumption tax. Taxing people on what they produce has never made sense to me.

    Comment by Stephen Littau — August 11, 2012 @ 5:04 pm
  23. “then why not Olympic “prize” money, which is really a gift from the USOC.”

    Prize (not “prize”) money is not a gift. You don’t get it unless you do well enough in your sport to earn it.

    “And I’m not talking about taxing people based upon motivations but upon the fact that the “prize” money doesn’t even compensate the athletes for what they have put in.”

    What’s that got to do with it? Prize money is income. Simple as that.

    Comment by Not Sure — August 11, 2012 @ 5:05 pm
  24. “What’s that got to do with it? Prize money is income. Simple as that.”

    So you agree with taxing tips.

    Comment by JewishVampire — August 11, 2012 @ 5:18 pm
  25. @Stephen Littau:

    “Why tax income at all? IF taxes should exist at all, it should be in the form of a consumption tax. Taxing people on what they produce has never made sense to me.”

    A consumption tax (which is a form of sales tax) is also regressive and disproportionately hurts those who make less. Those who make less have less or no disposable income and have very little control of what they have to consume. Even Adam Smith recognized that and felt taxing necessities of life was immoral and unfair.

    Comment by JewishVampire — August 11, 2012 @ 5:22 pm
  26. From the IRS website:

    Tips
    All tips you receive are income, and subject to income tax. This includes tips customers give you directly, tips customers charge on credit cards that your employer gives you, and your share of tips split with other employees.

    Comment by Not Sure — August 11, 2012 @ 5:22 pm
  27. @JewishVampire:
    I think the so-called Fair Tax is the best option – though I don’t think there is a perfectly “fair” way for the government to tax the people. The Fair Tax accounts for some of the concerns you mentioned.

    If taxation is based on spending, the consumer has more control of how much s/he is taxed. Under the Fair Tax, only spending for new products at the retail level are taxed. Why should the government get a bite at the apple every time a good is sold? I think one time is quite enough.

    Comment by Stephen Littau — August 11, 2012 @ 5:43 pm
  28. @Not Sure:

    “Tips
    All tips you receive are income, and subject to income tax. This includes tips customers give you directly, tips customers charge on credit cards that your employer gives you, and your share of tips split with other employees.”

    I’m well aware that tips are considered income but I asked if you agreed with that.

    Comment by JewishVampire — August 11, 2012 @ 5:56 pm
  29. The real problem as I see it is the federal government is too big and does too much. If the federal government was held within its constitutional limits, we wouldn’t need taxes to be very high at all (in the early days, there wasn’t any tax at all; government was funded by duties and tariffs). Basically, all we really need the federal government for is for national defense (note: NOT nation building nor policing the world) and very little else. The states and territories ought to determine criminal and civil laws themselves for the most part.

    But as long as we have the enormous federal government we have, I think that everyone should have to pitch in one way or another. If the tax rates are not the same, at the very least, the federal government should be prohibited from raising taxes for one class while lowering it for another (i.e. if taxes are raised 1% on the poor, the same 1% raise should also apply to the middle class and the rich). Also, expand the base, lower the rate, and eliminate deductions. Businesses should be neither taxed nor subsidized. No taxes on investments either.

    Politicians like this class warfare because it takes the attention off them and pits citizens against each other.

    Comment by Stephen Littau — August 11, 2012 @ 5:59 pm
  30. @Stephen Littau:

    I agree that there is no truly equitable tax system but those who make less can only control so much. After all, they have to eat, have shelter and clothing. There is only so little they can spend on such things. Taxing necessities of life is wrong and regressive. Here in California, groceries are not taxed because to do so is unjust.

    I’ve been trying to find a less worse solution but have not yet succeeded.

    Comment by JewishVampire — August 11, 2012 @ 5:59 pm
  31. Under the Fair Tax, those who are under the poverty level pay no taxes at all after prebates. This is an ideal plan for the poor. http://www.fairtax.org/PDF/PrebateExplained2012.pdf

    Comment by Stephen Littau — August 11, 2012 @ 6:04 pm
  32. “I’m well aware that tips are considered income but I asked if you agreed with that.”

    Yes, I agree with that as long as income is to be taxed.

    Comment by Not Sure — August 11, 2012 @ 6:26 pm
  33. “Yes, I agree with that as long as income is to be taxed.”

    Do you think it should be taxed as normal income or at a higher rate? Then shouldn’t money inherited be taxed since it is income?

    Comment by JewishVampire — August 11, 2012 @ 9:40 pm
  34. “Under the Fair Tax, those who are under the poverty level pay no taxes at all after prebates. This is an ideal plan for the poor. http://www.fairtax.org/PDF/PrebateExplained2012.pdf

    That definitely looks better. Getting rid of the IRS can only be a good thing. Next step would be to get rid of the Federal Reserve.

    “The real problem as I see it is the federal government is too big and does too much. If the federal government was held within its constitutional limits, we wouldn’t need taxes to be very high at all (in the early days, there wasn’t any tax at all; government was funded by duties and tariffs). Basically, all we really need the federal government for is for national defense (note: NOT nation building nor policing the world) and very little else. The states and territories ought to determine criminal and civil laws themselves for the most part.”

    A national government can settle disputes between states or if a citizen of one state has a dispute with another state. A national government can also see to it that all citizens are treated equally throughout the nation. There is a few other things but it definitely needs to be limited. Something between the Articles of Confederation and the current Constitution would be better, IMHJO. The current Constitution gives the Executive branch too much power (the anti-Federalists appear to have been correct in this regard). I agree the Federal government is much too big and has been allowed to erode freedoms and person liberties. Also, the larger the Federal government, the easier it is for large corporations and wealthy individuals to rig the system even more in their favor.

    “But as long as we have the enormous federal government we have, I think that everyone should have to pitch in one way or another. If the tax rates are not the same, at the very least, the federal government should be prohibited from raising taxes for one class while lowering it for another (i.e. if taxes are raised 1% on the poor, the same 1% raise should also apply to the middle class and the rich). Also, expand the base, lower the rate, and eliminate deductions. Businesses should be neither taxed nor subsidized. No taxes on investments either.”

    I’m not entirely sold on proportionately raising or lowering taxes for all income classes. Investment income should be taxed since it is income, if income is going to be taxed (I prefer income not to be taxed).

    “Politicians like this class warfare because it takes the attention off them and pits citizens against each other.”

    Both sides and parties play this game but the Right, IMHJO, seem to be more diabolical in it.

    Comment by JewishVampire — August 11, 2012 @ 10:11 pm
  35. “Then shouldn’t money inherited be taxed since it is income?”

    What do tax rules regarding inheritances have to do with income earned by winning a sporting event?

    Comment by Not Sure — August 12, 2012 @ 8:31 am
  36. The notion that is being presented as to why Olympic prize money should be taxed is that it should be treated like any other income. But not all income is treated the same since some are taxed at a higher rate than others and some not taxed at all. So the argument of consistency is not valid because not all income is taxed.

    I say go back to pre-1986 when taxing Olympic prize money was not done. The taxing of prize money is another power grab by the government.

    Comment by JewishVampire — August 12, 2012 @ 11:44 am
  37. Ok- fine.

    Olympic prizes are not like inheritances.

    If you win, you get $$$, very much like income earned at a job where if you do *whatever*, you get $$$.

    An inheritance is not anything like this. You don’t know you’re going to get it until you get it. And you don’t necessarily have to do anything in particular to get it.

    So no- Olympic prizes are not like inheritances.

    Comment by Not Sure — August 12, 2012 @ 4:03 pm
  38. Right, Olympic prizes are not like inheritances in that you actually earn Olympic prizes, as opposed to inheritances. But both are still income. And Olympic prizes are taxed more than capital gains, also income. In other words, not all income is treated the same. So this notion that Olympic prizes should be taxed because other income is taxed is not a valid argument since not all income is taxed.

    The argument that inheritance should not be taxed because one does not know how much one will get is not valid. When money is inherited, you know then how much you are receiving. Just like a bonus at work is taxed even if you don’t know how much the bonus will be until you receive it or even if you are going to receive it. And not doing anything to earn an inheritance is more of an argument to tax it than not to tax it. Bottom line, inheritance received is still income.

    We will have to agree to disagree on this issue since neither one of us is going to moved by the other’s arguments and points.

    Comment by JewishVampire — August 12, 2012 @ 5:38 pm
  39. “So this notion that Olympic prizes should be taxed because other income is taxed is not a valid argument since not all income is taxed.”

    Ok. Based on your claim: “Not all income is taxed” and “Olympic prizes should be not be taxed”, the conclusion follows that no income should be taxed. When do you suppose the Wage Earner Tax Elimination Act will be enacted? Soon, I hope.

    “The argument that inheritance should not be taxed because one does not know how much one will get is not valid.”

    I didn’t make that argument.

    Comment by Not Sure — August 12, 2012 @ 5:55 pm

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