Richard Burr’s Bizarre Plan To Tax Student Athletes

Ronald Reagan once quipped that “government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” With the NCAA’s recent decision to allow college student-athletes to profit off their name and likeness in third-party sponsorship deals, members of Congress wasted no time taking us to Stage One.

Senator Richard Burr (R-NC) announced on Twitter his intention to introduce a bill that would tax college athletes’ scholarships like income, should they decide to make money off their personal brands.

Note that the money college athletes would earn through outside sponsorship deals is already taxable as income under current law. Burr’s plan would change the tax treatment of scholarship “income.” Currently, most scholarships that are used to pay college tuition and fees are not taxable as income. Burr would change that, but only for student athletes who land outside sponsorships.

Current law does not tax scholarships for a number of reasons, but among the most important is that scholarships are often more of an accounting fiction than actual money. Consider a student who attends a university charging $10,000 tuition, which he pays out of pocket. The next year, the student’s tuition rises to $12,000, but the school also gives him a $2,000 scholarship. The student’s so-called “scholarship income” rose by $2,000, even though his net tuition payment stayed exactly the same.

Universities often charge high tuition, coupled with high financial aid, in order to charge different prices to students based on their ability to pay. A school can maintain the same headline price while giving a low-income student a heavy discount and charging a rich student full freight. Forty percent of students at public colleges and universities and 74% of those at private ones now get some amount of institutional aid.

If I use a coupon which gives me $3 off a family-size bag of candy corn (a.k.a., the world’s best seasonal candy), it would be silly for the government to count that $3 discount as income. The same principle tells us that it would be silly to tax institutional scholarships, since they are often just accounting tools used by colleges to charge students prices commensurate with ability to pay.

Admittedly, the calculus changes somewhat if the college uses the scholarship to pay students for work they do. Scholarships of that nature are still not taxable under current law, so long as they are used for tuition and fees, rather than other expenses. However, the case for non-taxability is slightly weaker, since the tax code is now discriminating between cash labor income (which is taxable) and in-kind labor income in the form of scholarships. Perhaps one could argue that playing football is labor, and college athletes’ scholarships are the compensation.

But that is not the logic behind Senator Burr’s plan. Burr would tax student athletes’ scholarships only if they profit off their name or likeness in third-party sponsorship deals. Such external contracts should have no bearing on whether playing for your school’s football team counts as “work.” If one player lands an outside endorsement deal and another one does not, the tax code would treat those two individuals differently under Burr’s plan.

Moreover, Burr would treat college athletes differently from other college students who do work in exchange for scholarships. Currently, tuition waivers for graduate research assistants and other student employees are tax-exempt. Out of all the different classes of working students, why single out athletes with outside sponsorship deals for extra taxation?

In short, Senator Burr’s proposal to tax student athletes’ scholarships based on whether they receive third-party sponsorships has no real justification on philosophical grounds. Moreover, given that the vast majority of taxpayers are not about to sign a lucrative endorsement deal with Nike, the revenue such a plan would raise is trivial. There are worthier causes for Congress to focus on.