The question about the National Football League’s nonprofit status is about far more than the NFL and sports leagues. Fundamentally, this is a debate about the tax code and what kind of relationship taxpayers want with the federal government.
First, some context: Few Americans realize that every year Congress sets aside nearly $1 trillion for what are called tax expenditures. These expenditures include everything from popular deductions like the mortgage interest and charitable deductions to special breaks for the tackle-box industry, Eskimo whaling captains, green energy companies and even professional sports leagues like the NFL. Martin Feldstein, a former economic advisor to President Reagan, calls these expenditures “spending by another name,” because they are essentially cash subsides the federal government sets aside to reward specific industries and behaviors. In other words, just as Congress has had a history of earmarking funds for particular industries through spending bills, it does exactly the same thing through the tax code.
One problem with this system is that tax earmarks are essentially tax increases for everyone who doesn’t receive the benefit. In this case, Americans are paying artificially high rates in order to subsidize special breaks for sports leagues. That means you may be paying a slightly higher tax rate than is necessary to subsidize Jerry Jones or Tiger Woods.
The NFL would challenge this characterization, saying its teams are already tax-paying entities. Yet, if its tax-exempt designation wasn’t helpful to owners and players, why would the league not give it up? The resistance to subjecting its headquarters to the same rules as other for-profit businesses, including Major League Baseball, raises eyebrows.
Ultimately, the NFL headquarters is similar to other joint ventures between for-profit entities. Therefore, it should be taxed like other for-profit joint ventures. For instance, if other franchises, such as restaurants, can’t receive this benefit, then neither should sports leagues. It’s wrong for the tax code to give one venture an unfair advantage over others.
I recently introduced the PRO Sports Act, which would amend the tax code to prohibit professional sports organizations with annual revenues over $10 million from enjoying the same tax-exempt status as industry trade associations and public interest groups. Some of the other leagues that would be affected include the Professional Golfers Association Tour, the National Hockey League and the Professional Rodeo Cowboys Association. While the savings generated by ending this tax earmark ($109 million) aren’t going to end the deficit overnight, the way to make progress is to end one tax earmark at a time.
The NFL isn’t the problem, but Congress is. For years, politicians in Washington have argued they’re capable of picking winners and losers in an increasingly complex and competitive free market. What we’ve seen as a result of Washington’s conceit is a stagnant economy in which government tends to reward losers and punish winners.
I have no doubt the NFL does some good things with its tax status, but that isn’t what is at issue. It’s whether that is more important than the things you – the individual taxpayer – want to do with your money. While I’m a big fan of the NFL and football, I’m an ever bigger fan of freedom. Every dollar we spend on tax earmarks is a dollar that comes out of the pockets of fans. That means less freedom for you and a better financial statement for the NFL.
Read NFL tax attorney Jeremy Spector on why the league should retain its tax exempt status.