Aug 21, 2018

Tax Reform 2.0 Could Help Solve the Stadium Subsidies Problem

Last year Congress fumbled on the goal line with the Tax Cuts and Jobs Act, but ‘Tax Reform 2.0’ may offer another chance to address a loophole in the tax code that benefits billionaires and causes ordinary people to pay higher taxes. 

Federal tax law currently makes it easier for local governments to (unwisely) pay for sports stadiums with federal income tax-exempt municipal bonds. Municipal bonds are attractive to investors because of the tax exemption, leading to a lower borrowing cost for the city. This makes sense for public investments in things like roads, schools, and parks, but not for subsidies for private businesses.

The tax exemption lowers the cost of the subsidy paid by local taxpayers by foisting that cost on taxpayers around the country. People in Maine, Alaska, and Hawaii probably don’t realize that they’re helping fund the Las Vegas Raider’s new $1.9 billion stadium!

My colleague Anne Philpot and I wrote last January that initial drafts of tax reform legislation included closing the loophole that is effectively a handout to team owners, but that provision failed to make it into the final version of the bill.

This is not a small problem, either—Ted Gayer, Austin Drukker, and Alexander Gold’s research for the Brookings Institution found that the $13 billion in municipal bond stadium subsidies between 2000 and 2016 cost federal taxpayers $3.7 billion. To put the problem in real terms, consider that $3.7 billion could cover the cost of 39 F-35 Joint Strike Fighter jets or two of the Navy’s Arleigh Burke-class destroyers.

Given that there is broad bi-partisan consensus that subsidizing stadiums is a bad idea—Sen. Cory Booker (D-New Jersey), Sen. James Lankford (R-Oklahoma), and Rep. Steve Russell (R-Oklahoma) sponsored legislation last summer to end the tax loophole—maybe Tax Reform 2.0 offers a new chance to rein in this misuse of government funding.

You can read our January article (“Congress Fumbles Tax Fix to Stadium Subsidies”) for the long history of how this loophole has been improperly used to benefit professional sports team owners, and how many times Congress has already tried to fix the problem.

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