No, Donald Sterling does not deserve extra tax penalties
Donald Sterling likely treat his historic $2.5 million fine from the NBA as a routine business tax deduction, as is his right. However, a California congressman wants to bar Donald Sterling from taking the deduction.
Los Angeles Clippers owner Donald Sterling, third right, sits with V. Stiviano, left, as they watch the Clippers play the Los Angeles Lakers during an NBA preseason basketball game in Los Angeles in 2010. Gleckman argues that fining Sterling for his taped comments is fair, but taking legislative tax action against him is not.
Danny Moloshok/AP/File
I truly hoped to never write about Donald Sterling, the L.A. Clippers owner who doesn鈥檛 seem to want too many African-Americans attending his team鈥檚 games. But thanks to a California congressman who wants to bar Sterling from taking a routine business tax deduction, I can鈥檛 resist.
In response to Sterling鈥檚 offensive remarks, the National Basketball Assn. imposed a number of sanctions on the Clippers鈥� owner, including a $2.5 million fine.聽 It is likely that Sterling will deduct that fine as a business expense, as is his legal right. But California Democrat Tony Cardenas introduced聽聽last week that would bar Sterling from taking the deduction.
Of course,聽. It merely says the deduction would be disallowed for fines imposed on professional sports team owners after Dec. 31, 2013. But Cardenas鈥� target could not be more clear. 鈥淎re you paying the price for sports owners gone wild,鈥� Cardenas asks on his congressional home page. In case you still don鈥檛 get it, the question is accompanied by a roll-off photo of Sterling.
This is so wrong in so many ways. 聽Disallowing a deduction for one person is terrible tax policy. Disallowing the deduction retroactively is beyond terrible. And disallowing the deduction at all only further mangles our income tax, which, as a general matter, should tax income.
If you are offended by the IRS making life tough for political groups trying to get tax-exempt status, or by aides to New Jersey Governor Chris Christie tying up bridge traffic because they were mad at a mayor for not supporting Christie鈥檚 reelection, just imagine this. A congressman doesn鈥檛 like your politics, so he tries to take away your tax deduction. Not mine. Or your neighbor鈥檚. Just yours. 聽Richard Nixon, phone home.
People have been complaining about the ability of firms to deduct financial penalties for a while. Mostly, the complaints are aimed at banks that structure legal settlements with the Justice Department or the SEC so that a portion of their penalty payments is deductible.
The law is pretty clear. Fines paid to the government as punishment for breaking the law are not deductible. But a fine paid by a franchise owner such as Sterling to the sports league that sanctions his team clearly is a business expense.
If Congress wants to change the law, it may, of course. 聽Last year, senators Chuck Grassley (R-IA) and Jack Reed (D-RI) introduced a聽聽to end deductions for penalties levied as part of legal settlements with the government. But their measure would apply to all firms, not just those in one industry, and certainly not to a single individual or company.
Sterling鈥檚 remarks were obnoxious. The NBA鈥檚 fine and other sanctions seem entirely appropriate. But the fine is clearly a deductible business expense. If Congressman Cardenas wants to repeal the deduction for all franchisees, he should try. But just for Sterling (or other owners of professional sports teams)? I don鈥檛 think so.
Special subsidies that benefit individual taxpayers are outrageous. But so are special taxes that punish individual taxpayers. Rep. Cardenas fouled out on this one.