July 28, 2014

Coburn Throws a Flag on Tax Breaks

  • The nation's fiscal future depends on the balance between the spending in the federal budget and the revenues flowing into the treasury. Tax policy...

Legislation recently introduced in the Senate would strip away the tax-exempt status of professional sports leagues, including the NFL, NHL and PGA. (MLB switched its tax status to a limited liability corporation in 2007.)

The bill, introduced by Sen. Tom Coburn (R-Okla.), would bar professional sports leagues’ central offices from filing as tax-exempt trade associations under section 501(c)(6) of the tax code. That section was designed to allow certain organizations -- such as chambers of commerce and other business groups -- to file as tax-exempt if they promote the broad interest of their industries.

Coburn, however, says the sports leagues promote their specific multi-billion-dollar businesses. So in his view, their tax-exempt status simply leads to taxpayers subsidizing the profits of professional sports brands.

While the revenue the government would gain from changing this tax provision would be relatively small, it illustrates the way in which “tax expenditures” can provide subsidies for some organizations at the expense of other taxpayers.

The Joint Committee on Taxation (JCT) estimates that Coburn’s bill would raise $109 million in revenue over 10 years, but that number could fluctuate based on how the leagues would share their profits with their teams and other subsidiaries.

Altogether, however, tax expenditures cost the federal government $1.3 trillion a year in lost revenue while adding to the unnecessary complexity of the tax code.

The ideal solution would be comprehensive tax reform that would improve the efficiency of the tax code and dramatically reduce such tax expenditures, with at least some of the new tax revenue used to reduce federal deficits.