Olympic Medal Taxation Craziness

Every four years we usually see at least one bill introduced in Congress to make Olympic medals and related prize winnings (such as cash) non-taxable to the athletes. Why? There is no good reason for excluding this prize income.  All prizes are taxable because they are an accession to wealth which is what our income tax system is based upon. If you win a raffle or win on Jeopardy!, the prizes are taxable. Why should an Olympic medal be different?

Possible reasons offered:

1. The athletes are representing the U.S. Sounds patriotic but the winnings are still income and we could come up with all kinds of reasons to make all income non-taxable if we tried. For example, people who work in hospitals are helping people, perhaps we should exempt their income from tax?
2. The athlete might have to sell their medal to pay the tax. This is weak because the metal value is under $1,000. (See Forbes article by DeMarco for the estimate based on the value of gold and silver today.) Also, the U.S. athletes also get cash from the US Olympic Committee, reportedly $25K for gold, $15,000 for silver and $10,000 for bronze.  Not bad. Yes, they incur a lot of costs to prepare, but so do students earning college degrees and their income is taxed.
3. The athletes are low income.  If they are low income, the tax system will already put them in a zero or very low tax bracket. But they are not all low income. While not all have the estimated $50 million net worth of Michael Phelps (Money magazine article), many do earn a lot of money from sponsorships or employment.

S. 2650 would exempt the value of the medal and cash prizes from the U.S. Olympic Committee. It passed the Senate on July 12 and a version is being considered by the House (H.R. 2628).

California has also joined in this craziness. AB 1944 would exempt the value of Olympic medals and associated cash prizes from California income tax through 2020.

These proposals don't meet most of the principles of good tax policy.  Most importantly, they don't meet the principle of equity and fairness. Olympic medal income is really no different from any other type of taxable income.  There is no reason to exempt it from taxable income.

What do you think?