Sound the trumpets, Congress has introduced yet another bill to eliminate the federal tax benefit of using municipal bonds to finance the construction of sports stadiums.
Senators Cory Booker, D-N.J., and James Lankford, R-OK are sponsoring a bill that would prohibit teams from using municipal bonds to help finance stadium construction.
In a statement accompanying the introduction of their bill, Booker said, “Professional sports teams generate billions of dollars in revenue. There’s no reason why we should give these multimillion-dollar businesses a federal tax break to build new stadiums. It’s not fair to finance these expensive projects on the backs of taxpayers…”
Currently, interest on municipal bonds used to fund the construction of sports stadiums is exempt from federal income tax. The benefits to bondholders is obvious: They collect the interest tax free. That could result in a savings of up to 39.6 percent depending on the taxpayer’s tax bracket.
There is also a corresponding benefit to the municipality — the bond payer. If the bonds are tax free, they will sell for less than taxable bonds, resulting in lower bond payments. In effect, tax- free bonds shift costs from local to national taxpayers.
How much money are we actually talking about? The most current study, published by Brookings in 2016, compiled data on sports stadiums in the four Major League team sports from 2000-2016, forty-three newly constructed facilities and two major renovations. The estimated revenue loss to the federal government was between $3.0 and $3.7 billion depending on the discount rate (5 percent or 3 percent, respectively). To the average citizen that sounds like a lot of money, but over a period of 17 years, that’s approximately $200 million per year. That figure pales in comparison to the 2016 federal budget of $3.9 trillion and deficit of $587 billion.
On the surface, it may be hard to dispute the Senators’ claim that the tax law is unfair on this issue. The cost of the federal subsidy is spread among all taxpayers, regardless of where they live or how much benefit they receive from the stadiums in question.
It should come as no surprise that taxpayers in New York City received the most benefit. Tax free bonds were used to build the new Yankee Stadium at a tax loss of $431 million and Citi Field for the Mets at a cost to taxpayers of $185 million. Those two facilities combined for almost one-fifth the total federal subsidy for the period covered in the report.
Should taxpayers in states such as Montana and Idaho, who arguably receive zero benefit from the NYC stadiums, be upset? Perhaps. But examples of socialistic tax policy, where one group of taxpayers subsidizes another, abound.
Bankrate.com lists eight of the largest tax breaks granted by the federal government. They include employer-provided health care, mortgage interest, capital gains and dividends, pension plans, earned income credit, state and local taxes, charitable donations, social security and railroad retirement benefits. Estimated cost to taxpayers between 2014 and 2018: almost $4 trillion.
In case you haven’t figured it out yet, Congressional tax policy has no rhyme or reason. The only certainty is the wealthiest among us benefit the most. One example is the aforementioned deduction for mortgage interest. While mortgage interest on your home is tax deductible, lease payments on a home or apartment you rent aren’t. That seems patently unfair considering that most homeowners are wealthier than tenants.
Not to be overlooked is that tax benefits to billionaires from municipal stadium bonds is also seen as a benefit to average taxpayers who revel in their sports teams. They’re voters too, just like the folks who receive direct tax benefits from other government. That’s why the bill introduced by Senators Booker and Lankford will die a quiet death, just like a previous iteration introduced by Congressman Steve Russell, R-OK. last year.
If Congress really wants to cut the federal deficit, there are more fertile areas to mine than subsidies for sports stadiums.
Jordan Kobritz is a former attorney, CPA, Minor League Baseball team owner and current investor in MiLB teams. He is a Professor in and Chair of the Sport Management Department at SUNY Cortland and maintains the blog: http://sportsbeyondthelines.com The opinions contained in this column are the author’s. Jordan can be reached at email@example.com.