Taxpayers Get a Win Over Sports Stadium Cronies

COMMENTARY Budget and Spending

Taxpayers Get a Win Over Sports Stadium Cronies

Nov 3rd, 2017 1 min read
COMMENTARY BY
Michael Sargent

Policy Analyst, Transportation and Infrastructure

Michael Sargent is a Policy Analyst in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
At least 36 stadiums, including the new Las Vegas stadium, have been financed with tax-exempt bonds since 2000. Image of Sport/Newscom

Key Takeaways

As the Houston Astros enjoy their World Series victory, taxpayers across the country have a reason of their own to celebrate this week.

Due to a loophole in the tax code, sports franchises have been able to exploit the tax preference designed for public infrastructure to build their private stadiums.

Ending the tax preference for sports stadiums is a clear win for all federal taxpayers, regardless of which team they support.

As the Houston Astros enjoy their World Series victory, taxpayers across the country have a reason of their own to celebrate this week.

Buried in the tax reform bill is a provision that fixes an egregious loophole that sends billions in tax preferences to private sports stadium construction.

The current tax code allows billion-dollar sports franchises—such as the (soon-to-be) Las Vegas Raiders—to use tax-exempt municipal bonds to build their stadiums.

Whereas interest generated by corporate bonds is taxable by the federal government, municipal bond interest is tax-exempt, allowing municipal bonds to command comparatively lower interest rates.

Tax-exempt municipal bonds are generally reserved for public-use infrastructure projects, such as roads, schools, and water systems. But due to a loophole in the tax code, sports franchises have been able to prolifically exploit this tax preference to construct their private stadiums.

Since 2000, at least 36 stadiums have been financed with tax-exempt bonds, amounting to a total tax subsidy of $3.2 billion due to lower financing costs.

Worse still, the foregone federal revenues from this carve-out are even greater—amounting to $3.7 billion. This is because the subsidy is inefficient, allowing high-income earners to capture some of the benefits.

While proponents of this tax break claim that sports stadiums create jobs and economic growth, studies detailing subsidies for sports stadiums repeatedly show no effect or even a drag on economic growth in the overall metropolitan area in which the stadium was constructed.

Building on a bipartisan effort to eliminate this handout to special interests, congressional leaders took the admirable step of eliminating the option of tax-exempt financing for any sports stadium in section 3604 of the tax reform bill.

While the provision eliminates just one of the many crony features of the current tax code, ending the tax preference for sports stadiums is a clear win for all federal taxpayers, regardless of which team they support.