Taxation by Rent-Seeking: Why is the Daytona 500 Tax Exempt?

The Daytona International Speedway

Incumbents support tax policies often just to get reelected. Political “rent seeking” its called.  Anyway, taxing authorities occasionally exempt activities, properties, and sometimes people, like clergy or military veterans, from taxation.  And sometimes even certain events are exempted from taxation.  Will Rogers was once heard to say “Things aren’t what they used to be and probably never were.” I was gonna express in this post that it used to be that tax law in general, and tax exemption in particular, were all based on a grundnorms — principled grand theory — the fundamentals of which we learn in law school and by practice.  And everybody adhered.  But c’mon, there is no rhyme or reason to it all, most of the time.  That’s what some experts concluded when asked why the Daytona 500 should be exempted from Florida’s generally applicable sales tax.

So, how did the Daytona 500 exemption make it into the bill. CBS Miami has obtained an email showing it was a lobbyist for NASCAR that wrote the amendment. On February 21, a day after last year’s Daytona 500, Luke Strominger – an aide for South Florida State Senator Anna Maria Rodriguez, wrote an email to Robert Babin, the staff director for the Senate’s powerful Tax and Finance committee. “David Browning wants to have this included in the tax package.” Attached was this document with the wording for Daytona 500 tax exemption that was inserted into the bill at the last minute. David Browning is one of eight lobbyists in Tallahassee for NASCAR. Reached by phone, Browning declined to comment for this story.

“Well, of course, there’s no surprise that they’re the ones who stuck this in because reducing the tax on the Daytona 500 doesn’t benefit anyone except a little bit for the handful of people who go to this event,” Matheson said.  “And of course, the owner of the event itself. The vast majority of those benefits, again, go to the people who need it least. Babin, the policy director for the Tax and Finance committee, argued it is customary for suggestions and possible amendments to tax bills be sent to him, saying: “We are sort of the collection point for all of the ideas.” Neither Senator Ana Maria Rodriguez nor her aide responded to requests for comment.  A spokeswoman for the Florida Senate issued a statement that read in part: “To craft this legislation, dozens of ideas brought forward by Senators, constituents, businesses and advocacy groups were compiled over a number of months. Each idea was reviewed and vetted as part of the committee process and ultimately, a final tax relief package was developed during the budget conference between the House and Senate.”

I am not just picking on DeSantis — aka, “Florida man.”  Tax and tax exemption by rent seekers is, of course, not unique to Florida.  In the Congress there is once again a move afoot to deny tax exempt bond financing for “professional sports stadiums.” This Forbes article summarizes what seems a definite consensus that using tax exemption to subsidize this much private wealth is not worth whatever public benefit coincidentally arises from the tax exemption:

The bill, introduced by Representatives Jackie Speier (D-CA), Earl Blumenauer (D-OR), and Don Beyer (D-VA) would end the tax-exempt status of bonds used to finance professional sports stadiums.  That’s fine as far as it goes. But rather than aiming only at pro sports (and really at Snyder), Congress should completely rethink private activity bonds. Should they be reserved only for public infrastructure, such as roads, bridges, and public schools? What about non-profit hospitals? Should Congress impose meaningful caps on the annual issuance of these bonds? Why should state and local governments use taxpayer money to subsidize any well-connected businesses to the detriment of competitors that don’t have the clout to get cut-rate bond financing?

. . . 

Private activity (aka private purpose) bonds usually are issued through a quasi-government entity such as a housing or economic development authority. About two-thirds of these bonds are for 501(c)(3) non-profits, such as hospitals. The rest finance projects run by for-profit businesses. Like other state and local government bonds, the interest they pay is tax-free to investors. But the proceeds go to the private entities and the money to repay the bonds comes from the project being financed rather than general tax revenues.

Years ago, the Joint Committee on Taxation identified the problems with these bonds: They inefficiently allocate capital, raise the cost of financing traditional governmental activities, help higher-income investors avoid taxes, and reduce federal revenues.

I doubt there is a mathematical formula or scientific process by which the public good can be achieved without private gain.  In order to achieve public good — a more learned society, for example — we have to convey private benefit — awarding an income enhancing degree to students at tax subsidized colleges or universities, for example.  We just need a better way to minimize unnecessary private benefit.  Keep the tax landlords — the “rent seekers” — honest.  

darryll jones