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. 

Danny Moloshok/AP/File
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.

I truly hoped to never write about Donald Sterling, the L.A. Clippers owner who doesn’t seem to want too many African-Americans attending his team’s games. But thanks to a California congressman who wants to bar Sterling from taking a routine business tax deduction, I can’t resist.

In response to Sterling’s offensive remarks, the National Basketball Assn. imposed a number of sanctions on the Clippers’ owner, including a $2.5 million fine.  It is likely that Sterling will deduct that fine as a business expense, as is his legal right. But California Democrat Tony Cardenas introduced a bill last week that would bar Sterling from taking the deduction.

Of course, the bill never mentions Sterling. It merely says the deduction would be disallowed for fines imposed on professional sports team owners after Dec. 31, 2013. But Cardenas’ target could not be more clear. “Are you paying the price for sports owners gone wild,” Cardenas asks on his congressional home page. In case you still don’t get it, the question is accompanied by a roll-off photo of Sterling.

This is so wrong in so many ways.  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’s reelection, just imagine this. A congressman doesn’t like your politics, so he tries to take away your tax deduction. Not mine. Or your neighbor’s. Just yours.  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.  Last year, senators Chuck Grassley (R-IA) and Jack Reed (D-RI) introduced a bill 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’s remarks were obnoxious. The NBA’s 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’t 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.

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