The word "tax" appears 39 times in the report. Tax law changes suggested:
Page 17 - allow taxpayers to deduct the costs for their children to participate in youth sports.
Page 18 - allow taxpayers serving as volunteer coaches for youth sports to deduct out-of-pocket expenses.
Page 18 - to help support youth and grassroots sports, consider new revenue sources such as from an excise tax on legal sports betting and a voluntary checkbox on income tax forms for donations
The report notes the 2016 tax law change to add an exclusion from income for the value of the metal in gold and silver prize medals and bonuses winners receive (unless the taxpayer has AGI determined with the value of Olympic winnings above $1 million - IRC §74(d))
Well, that all sounds good - doesn't it? But do these proposals meet any of the principles of good tax policy? I don't think so. Let's look at a few key principles regarding the deduction proposals.
Equity and fairness: For vertical equity, the deduction for children participating in sports will provide greater tax savings to higher income individuals because they are in a higher tax bracket and are likely to spend more on participation. Some leagues can cost thousands of dollars to join and often there are travel expenses too. If such a proposal were enacted, I suspect it would be an itemized deduction so would not help the majority of taxpayers and likely would have some type of cap.
If there is any money for new deductions, perhaps using that money to instead help fund sports programs at public K-12 schools would be a better way to go.
Convenience of Payment: For families who would most benefit from some assistance to enable their child to participate in local youth sports program, the deduction won't be enough and it won't provide any funds when it is time to sign up and get a uniform and equipment.
Simplicity: Any exception or special rule requires details on what qualifies and what does not. This is where complexity comes into play (see my post of 3/24/24). Principles of good tax policy are best met with a broad tax base and lower rates.
Neutrality: And why only subsidize youth sports via a tax deduction? Why not art and music, visiting museums, etc.? Also, some youth leagues, particularly the high fee ones, would likely increase fees because of the tax break to the payor. More parents might volunteer to coach (which is a good thing, but does violate the principle of neutrality if the tax deduction causes the behavior change). Volunteer coaches give up a lot of their time and some might even reduce work hours to coach - this really can't be compensated via the tax system (and isn't in the proposal) and I suspect most of the dedicated parent coaches don't expect to be compensated via the tax system.
Minimum Tax Gap: Unfortunately, the deduction likely would be abused. Some individuals would deduct something even if their child did not participate or if they do, would add in some costs not directly related to the sports activity (perhaps more clothes or activities disguised as training). Similarly, some individuals might view themselves as coaches and deduct costs.
What do you think?
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