Take me out to the (expensive) ball game
Should Congress amend tax laws to lower the price of entertainment?
The New York Times had an op-ed yesterday by two professors who argue that an old tax law allowing businesses to avoid paying taxes on entertainment expenses with a “business purpose” is largely responsible for the high price of tickets for Major League Baseball games. Their suggestion? Altogether eliminate the business entertainment tax deduction or at least limit the amount that businesses are allowed to write-off.
Unfortunately, the authors provide no framework within which to make a considered judgment of their arguments. They make a compelling case for how the tax exemption led to higher ticket prices, but offer no discussion of why the law exists in the first place or what the consequences might be of its repeal.
Obviously there is a market distortion created by the tax exemption on business entertainment expenses: the after-tax cost for entertainment is higher for individuals than for a business. The question is whether the benefits of this loophole outweigh the costs.
The authors, who support Congressional action to remove the business entertainment deduction argue that the tax exemption effectively subsidizes ticket prices for businesses: they are able to pay more for tickets because of the money they save through tax exemptions on this spending. Since businesses are willing to spend more on tickets, it drives prices up for everyone. Thus, the market distortion has the consequence of increasing costs for individuals and should be rectified by eliminating or limiting the tax deduction.
Those who oppose Congressional action, on the other hand, might argue that the benefits of the exemption outweigh the costs of a distorted market. The exemption, after all, is designed to promote business growth, which in turn will promote economic growth. Examples of big business wining and dining clients may cause emotional repulsion, but most of those who benefit from the deduction are small businesses for which entertainment can be an important way to network and build business. Eliminating the exemption would have negative effects on economic growth and make everyone worse off. Thus, even if revoking the tax exemption was meant to reduce the cost of entertainment for individuals, it would actually increase the relative cost by decreasing the standard of living.
Your position on action recommended by the op-ed, then, will be based on whether you buy the supply-side economics argument that the business entertainment tax exemption promotes economic growth which increases the standard of living for everyone. If you do, then it’s probably best to leave the law alone. If you don’t, then cheaper tickets are to come by its repeal.
-Marc
Photo by Flickr user bk1bennett used under a Creative Commons Attribution license.
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