If you want to get good football or basketball season tickets at a top tier NCAA program, you often have to make an additional “contribution” to the school. For the best seats at Syracuse University, the university requires a “donation” $700 per year (plus an additional donation of $10,000 over five years). You might think that since those donations are required to get the seats, they are just part of the ticket price and certainly shouldn’t qualify for a tax subsidy, but you’d be wrong. 80 percent of the donation is allowed as a charitable deduction. Thus, for the well-heeled sports fan sitting court-side, the federal government rebates more than one-quarter of the required donation. (80% of the top income tax rate, 35%, equals 26%.) Since the deduction carries over to state income taxes, most states also implicitly rebate a portion of the cost.
An excellent article at Bloomberg.com estimates that this tax break costs the Treasury at least $100 million per year, and possibly as much as $1 billion.
This is one of my least favorite tax breaks, even though I am now a beneficiary of it. (Unlike Gov. Romney, I take full advantage of the charitable deductions allowed to me.) I thought that Congress’s official scorekeeper, the Joint Committee on Taxation (JCT), must have estimated the cost of this idiotic provision, but as recently as July 25, they declined to provide an estimate. (JCX-62-12)
The provision was originally enacted as part of the Technical Corrections Act of 1988 (showing how short-lived the spirit of tax reform was after TRA86). The rationale was that “The proposal would eliminate otherwise unavoidable valuation controversies between the IRS and many individual taxpayers as to the proper treatment of payments to college athletic scholarship programs.” (JCX-15-88) That is, of course, absurd since the proper treatment is to make the payments nondeductible since there is a clear quid pro quo. To add insult to injury, the 1988 act made the tax break retroactive to 1983.
JCT at the time listed the revenue cost as negligible. (JCX-32-88) I’d be surprised if it’s as big as $1 billion per year, but it’s clearly non-negligible. And it makes no sense as policy to provide giant subsidies to rich sports fans and/or the most successful college sports programs in the nation. As Bloomberg points out:
The 10 to 15 most powerful football programs, including LSU, probably don’t need the tax break to persuade fans to pay up for seats, Richard [president of LSU's booster organization] says.“It’s commonly said of LSU that roughly 80 percent of the state’s business is done in a five-hour period Saturday night in the premium seating area,” Richard says.
Thanks to Paul Caron at TaxProfBlog for flagging the Bloomberg article.
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