Politics! You’ve Got to Love It.

Running for office presents candidates with a number of opportunities to slip up. This is particularly a problem when the issue is a complicated one. As an example, let us take a look at taxation (surprise. surprise, surprise). Taxation can present traps for unwary candidates who are not careful with how they articulate their position.

Recently, there has been a call for exempting the value of Olympic medals from gross income. Some people think it’s wrong to require winning athletes to pay taxes on pieces of metal symbolizing their achievements. I will stay neutral on this, but the point of this post isn’t whether an Olympic medal exemption makes sense. It’s to point out what happens when that issue becomes campaign fodder.

Senator Charles Schumer of New York, a Democrat, has introduced legislation that would add an Olympic medal exemption to the Internal Revenue Code. According to this news story, his Republican opponent, Wendy Long, has criticized both Schumer and the proposal. She called the proposal “another example of cronyism in the tax code.” She went on to say, “It makes no sense. My contention is that giving tax breaks as he does to his favored ones – the Broadway stars, the Olympic medalists, the hedge funders – means that a greater burden is placed on the average New Yorkers who toil in obscurity but work just as hard and are as deserving of a tax break.” She made mention of members of the military, asking “Where’s the tax break for them? Even if they come home victorious and have won a war, instead of the 400 meter freestyle, no tax break for winning?”

So, three thoughts ran across my mind when I read that article. All three, thoughts, kind of “didn’t make sense”.

First, the Broadway tax break to which Long apparently was referring is not a tax break for Broadway stars. It is a tax break for those who invest in live theater productions, making available to them the same tax break already in existence for television and movie productions. On top of that the measure in question was the extension of the tax break, which had been enacted previously with an expiration date. I’m not necessarily a fan of this particular tax break, but I’m even less of a fan of a tax break that treats television and movie productions more favorably than live theater. What matters is that this tax break accelerates tax deductions for investors who, Ms. Long states, are not members of “….the middle class that Schumer pretends to champion.” Therefore it is a tax break pretty much for the wealthy among us, a tax break in line with many others supported by the political party under whose flag Long is running. It would be great if she made it clear that she opposes the long-standing pattern of Republican tax breaks for the wealthy, but if she is elected she might find herself at odds with at least some of her political colleagues in the Senate. But still, describing the tax break as one for the actors casts the issue in the wrong spotlight.

Second, the tax break for hedge funds has been attacked primarily by Democrats and although some Republicans have joined in the criticism, perhaps seeking something that dresses them in populism, most Republicans and their supporters have opposed any attempt to change the tax break. Some even demand lower taxes for carried interest, as described in this article. Again, it is great to see another tax break for the wealthy coming under attack from a Republican, but what happens to Long’s Senatorial career if she is elected? And what happens to Schumer, a Democrat, who breaks ranks with his party and opposes elimination of the tax break for carried interests? Politics is a strange, wacko world and, in this instance, the two candidates are taking positions contrary to their labels. Perhaps they should switch parties? Hmm!

Third, there exists a variety of tax breaks for members of the military. Long is playing on emotions when she suggests there are no tax breaks for them. Internal Revenue Code (IRC) Section 112 excludes from gross income compensation paid to members of the Armed Forces for serving in a combat zone, or was hospitalized on account of injuries incurred while serving in a combat zone. IRC Section 122 excludes from gross income certain portions of retirement pay way too complex to describe in one sentence. IRC Section 134 excludes from gross income the value of most allowances or in-kind benefits provided to a member or former member of the Armed Forces. I am not aware of any instance in which the IRS has required a member of the Armed Forces to include in gross income the value of any military honor, medal, badge, bar, or ribbon awarded to that person. Making it appear as though there are no federal tax breaks for members of the military does not nurture confidence in a candidate’s tax policy prowess.

So, I feel that there are far better ways to criticize an exclusion for Olympic medals than to confuse the issue with references to tax breaks for Broadway stars, hedge funds, and members of the military. The merits, or lack thereof, of an Olympic medal exclusion are, and should be, a separate matter.

Just my 2 cents.

What do you think?

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Bruce – Your Host at The Tax Nook

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