MLB owners receive billions in tax giveaways. Congress could change that.
Until recently, serving as an elected official was considered a high honor. Now, 90 percent of Americans don’t want their children to enter politics.
It is not difficult to understand why. Politics has always involved dirty tricks, but the level of vitriol that has come to characterize this intensely partisan era is not for the faint of heart. Any possible action, even totally benign, may be twisted by political opponents and media into something they claim is foul. The level of scrutiny is microscopic. What parent wants this for his child?
Incredibly, where parents fear for their children to tread, some business leaders have waded right in. In their dealings with government, businesses once focused on issues such as taxes and regulation, but some managements are now weighing in on hot-button partisan issues with no clear connection to their company’s (which is to say their employer’s) bottom line. Are they prepared for the resulting scrutiny? Is taking a stance that potentially alienates large segments of their businesses’ customer base consistent with their fiduciary duties to look after their shareholders’ interests?
Recently, the CEOs of Delta and Coca-Cola weighed in on changes in Georgia’s voting laws. The consequences for the politicking haven’t yet materialized, but it’s not hard to see how it could backfire, particularly in the current climate. For example, Georgia’s House of Representatives voted to take away Delta’s $35 million state sales-tax exemption on jet fuel. In the event, nothing came of it, because Georgia’s general assembly went into recess without the state senate voting on the matter, but that doesn’t change the fact that the CEO’s political stance risked costing his company a considerable amount of money.
Rob Manfred, the commissioner of Major League Baseball, went further than those CEOs, not only voicing opposition to the Georgia bill but also moving the 2021 All-Star Game and draft out of the state.
In response, Donald Trump called for a boycott of Major League Baseball, but it is difficult to uproot baseball fandom passed between generations. Senators Ted Cruz and Mike Lee have proposed eliminating baseball’s long-standing anti-trust exemption, but other sports operate successfully without this exemption, so such a move might well have little effect. Perhaps baseball’s biggest vulnerability is the repeal of favorable tax breaks. MLB itself is a for-profit business, but it likely has no taxable net income, and individual clubs are each separate entities. However, it is worth noting that one of the biggest tax subsidies for MLB and other professional sports is something called the Roster Depreciation Allowance, a break that provides sports franchise owners a tax deduction for the purchase price of their franchise spread over 15 years.
For example, Steve Cohen purchased the New York Mets in November 2020 for $2.4 billion, a transaction much celebrated by long-beleaguered Mets fans and also, I would think, by Mr. Cohen’s tax accountants. The RDA entitles the hedge-fund billionaire to tax deductions of $160 million annually for 15 years. The premise of this provision is the franchise depreciates to worthlessness, whereas in reality sports franchises rapidly appreciate. This deduction therefore has no economic justification. If Mr. Cohen later sells the team, he will probably repay the tax deductions in the form of a tax on gains, so, in effect, the RDA is like a tax-free loan to franchise owners.
What justifies providing billionaire sports franchise owners indefinite-length loans free of tax and interest? Based on recent sales just of MLB and teams, these bogus deductions could amount to more than $1 billion annually.
Democrats, ostensibly, are eager to tax billionaires, unless they can subsidize their state and local taxes. It seems to be dawning on Republicans that the billionaire class just isn’t that into them. Perhaps, in an environment desperate for revenue to cover runaway spending, Rob Manfred’s decision to wade into partisan politics will bring Democrats and Republicans together to enhance tax fairness by eliminating this illegitimate billionaire tax giveaway.