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The tax bill that House Ways and Means Chairman Brady rolled out on Thursday will generate lots of partisan and ideological fights over the next few months. But as we sort through the winners and losers in this giant, complex bill, all sides should champion one provision: ending the tax exemption for bonds used to build professional sports stadiums.
This small reform tucked into the Republican bill was also proposed by President Obama. In fact, the only group that supports the exemption are team owners who want to use it to pressure cities into helping them build new publicly financed stadiums.
So why is there an exemption for sports stadiums? Interest payments from municipal bonds have been exempt from the federal income tax since it was created in 1913. The exemption allows state and local governments to borrow at lower interest rates than other debt issuers. It is effectively a federal subsidy for local governments to build large, expensive public projects such as schools, roads, and, well, sports stadiums. No one thought to exclude sports stadiums from the benefit in the first half of the 1900s because that was a radical time when owners mostly paid for privately-owned stadiums. But team owners started getting more public dollars in the 1960s, and now owners expect and demand (with threat of moving the team) taxpayers to fund most if not all of the cost of their new stadiums.
Proponents of public funding argue that sports events draw fans to local bars, restaurants, and other local businesses and boost a city’s economic activity. But most economists disagree and conclude the public benefits don’t outweigh the costs.
Congress has tried to change the rules before. The 1986 Tax Reform Act told cities and states they had to pay off these bonds with revenue unrelated to the projects. That is, governments couldn’t service tax-exempt bonds with sales taxes on tickets or stadium parking. Congress hoped that cities and states wouldn’t impose taxes on local residents or businesses to pay for the facilities. But they did.
Even if Congress eliminates the tax exemption for interest paid on bonds used to finance stadiums, team owners are unlikely to stop what Deadspin correctly calls the stadium extortion racket. Owners will always have leverage over local politicians who don’t want to be blamed for losing a beloved sports franchise. And local governments will always find other ways to subsidize local teams. Ingelwood’s deal to bring the Rams back to California did not include a taxpayer-funded stadium, but it did provide tax breaks and public payments to reimburse the team for road improvement and game-day security.
But ending the exemption could at least curtail the size of the giveaways by requiring local governments or the team owners to pay higher, taxable interest rates for borrowing to fund the subsidies. And, regardless, federal taxpayers shouldn’t encourage this largesse.
Ending a $200 million (over 10 years) subsidy in a $1.5 trillion tax bill won’t get much attention. But this is a gritty underdog worth rooting for from a tax policy perspective.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
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