Jun 3 2009, 10:49AM
It's Time to Tax College Sports
Via the Economist's Free Exchange Blog, Kathryn Jean Lopez seems surprised that the Senate Finance committee is considering taxing college sports -- or, more specifically, considering changing the tax status of some college sports programs.
But look, this makes perfect sense. Colleges and Universities get tax exempt status because they are thought to be providing a valuable educational service. And they probably are. But many of those universities are operating athletic programs that are giant, commercial cash cows. The Congressional Budget Office (pdf) says that between 60 and 80 percent of Division IA athletic department activity can be described as commercial. And while pulling in dollars hand over fist might have some educational value, I doubt it's what Congress had in mind. 
Actually, colleges and universities have it twice as nice. Not only do they get tax exempt status, but charitable donations to the schools are tax deductible. In other words, schools can not only operate tax-exempt business enterprises; but the government will subsidize them to do it.
I've said all this before, but the easy solution here is to change the deduction rules governing charitable donations. Those rules are regressive. But, just as importantly, they don't benefit the common good in a narrow, serious way. As it stands you can claim the same charitable deduction for giving $10,000 to an orphanage as you can for giving $10,000 to your alma mater's athletic program in exchange for season tickets. Does anyone think that makes sense?
Image from Flickr user rdesai
D-IA programs also allow many colleges/universities to operate other teams which themselves are money-losing enterprises. Chances are the JV Curling Team wouldn't exist without some trickle-down love from the top-25 football team.
Some Universities (I believe Ohio State does this) use proceeds from their massive Football and basketball programs to help fund gyms and other athletic facilities for the larger student body.
Insofar as both of these things can be considered generally beneficial, allowing Universities to maximize profit from their athletic programs (ceteris paribus) makes sense.
Now the deduction thing, yea, that's some bullsh*t (which I hope they don't change until after I've secured some sweet season tickets to my alma mater)!
Anal_yst
http://1-2knockout.typepad.com
I concur in all respects. It is outrageous that income is escaping federal taxation in order to be transited towards the highly profitable enterprise of huge universities exploiting fake students. It is past time to eliminate the charitable deduction altogether, and encourage people to give money to charities because it is virtuous, not as a tax scam. We have huge structural deficits as far as the eye can see. Instead of hiking marginal tax rates on ordinary income to confiscatory levels, we should simplify the tax code and eliminate unnecessary deductions.
I'd add that the entire structure of subsidizing higher education (with tax breaks, outright grants, and subdsidized loans for schools and students is outmoded. The modern economy rewards higher education, so all the incentive is in place-- if you're a kid with prospects you should absorb the cost. With the government out of the way, I'm sure lenders & schools will find a way to pick which students to back and finance.
Its ludicrous that the taxpaying janitors at Harvard are subsidizing its students by means (an exemption is an expenditure).
I guess the markey rewards education, but not necessarily in the fairest fashion (hence Pell grants, etc) or in the way that is socially optimal (hence grants for medical research). But in general, yes, there is a whole lot of money going to higher education that might as well be going onto the bonfire.
This desire to tax some organizations, not tax others, tax at different rates, then subsidize whenever you think you need more of something, is a losing game.
Just dump all taxes other than personal income taxes. Money has to be earned by someone somewhere. Do a negative income tax to help the poor (fading as a percentage as they make more money, so there's an incentive.) And stop screwing around!
This is just make-work for lobbyists, accountants and politicians.
I think it works terribly in practice, but I'm not sure the general principle is offensive.
I think about it this way: It seems reasonable to me that the government tax activities with negative externalities -- eg, smoking, carbon consumption, etc. So why can't that principle cut in the opposite direction -- ie, why can't the government subsidize activities with positive externalities like education?
At first glance, this seems like a modest proposal. But I think I would rather regulate how the money gets spent rather than hand it over to the government.
As Anal_yst mentions above, it's possible to turn that money around for the benefit of athletes and the student body in general. I don't have the strength to read through NCAA rules and regulations, but I'm sure they require some amount of this to begin with. Why not extend that with some actual law.
I'm a student at USC, and I know our athletic program takes the opposite approach. They are financially independent from the rest of the university and about to put up a "football building" right on intramural field space (hard to come by in downtown Los Angeles). Another fun fact: Pete Carrol is reportedly the highest paid private university employee in the land.
http://www.nytimes.com/2009/02/23/education/23pay.html