Open season on the middle class

Senator Jeff Merkley, a Democrat from Oregon, addressed his contemporaries in Washington in late June about what he called the “Bluegrass Boondoggle,” a minor tax subsidy for racehorse owners, and scolded his Republican colleagues for protecting what he called special-interest favors.

While bizarre rhetoric from the ill-informed and simply ignorant so-called lawmakers now attempting to navigate an exit from a budget whirlpool of their own making is prominent in the current news originating in the District of Columbia, such vapid prattle has a way of being taken seriously by those who share the sort of misunderstanding that tends to become law in Washington.

“Horse racing may have been called the ‘sport of kings,’ but that doesn’t mean that the owners of horses, those millionaires and billionaires owning those horses, need royal tax treatment,” Merkley said, presumably with a straight face. “As long as these tax subsidies are preserved, the richest and best-off will remain in the winners’ circle, while working families don’t even get a chance to compete.”

Though the senator from Oregon is apparently not so inclined, I, though decidedly not wealthy, own a horse, a 2-year-old, New York-bred filly that is in the hands of trainer H. James Bond. Hopefully, she will earn several million dollars and win Grade 1 races until the age of 10. More realistically, the hope is that she will be capable of winning a maiden race restricted to fillies bred in New York.

If all goes well, she may make her first start at Saratoga this summer — the kind of thing to those who appreciate the importance of running a horse at the Spa — that is on your mind when you wake up in the morning. Still, horses being fragile and fate uncooperative, there is much more likely to go wrong than well.

Over the years — none of which saw my net worth advance into seven figures — there have been other horses in which I have been involved, all in partnership. None were stakes-class or particularly accomplished. The sale or loss through the claiming process, in some cases, came as welcome news. There have been a few winners and some mild disasters, like Fat Cat Matt and Wild Fury. The former was obstreperous and profoundly common, the latter an eventual winner for another owner at Mountaineer Park, not what we had in mind. One, a 2-year-old colt named Wamed, dropped dead in the winner’s circle at Calder after a group of which I was a part claimed him on a Christmas Eve. Tough game. But once a horse you own, no matter how small the share, wins a race you spend the rest of your life chasing that rush. The feeling is indescribable, so there will be no attempt here. If it is a part of your life’s experience, you understand. If not, you have missed something. In any case, it is impossible to win the Kentucky Derby without a horse.

The filly in Saratoga Springs represents the high-risk element of my investment portfolio and my partner’s. We have shared ownership of another thoroughbred and both of us have been involved in others. We’ve known one another for a long time and are both short of being millionaires let alone billionaires. Still, the desire to breed and race a good horse inspires immersion in what is generally and ill-advised and unprofitable venture. What is the price of dreaming?

There is no such thing as a typical racehorse owner and while the colors carried by many horses are registered to wealthy, some phenomenally wealthy — individuals, many more represent partnerships that have allowed middle-class, working people to share the unique experience of direct participation. This, not the view of the senator from Oregon and his ilk, is racing in 2011 and for the foreseeable future.

The old belief that all men are equal on and under the turf remains only half true but racehorse ownership in the 21st Century is no longer limited to the financially elite. One stark truth that has endured the ages remains: The overwhelming majority of participants — more than 90 percent — lose money chasing shadows.

No financial advisor will recommend horse ownership as a hedge against inflation, a collapse f the bond market or a downward spiral in the equity markets. If that is your objective, buy gold. As an investment, owning horses is entirely irrational and were racing dependent upon “millionaires and billionaires” to supply and maintain the equine participants the sport would cease to exist.

The economics of the sport and the wide appeal of ownership have given rise to an age in which many horses are owned by partnerships that range from a few to many shareholders, most unable to afford ownership of horses as individuals. A Google search for horse racing partnerships yields more than a million results and while the players are many the rewards are few.

Animal Kingdom, the Kentucky Derby winner, is owned by a Team Valor partnership, one of many geared to the affluent investor. The majority of partnerships, however, has objectives less ambitious and is familiar to racing fans, though obviously not to Sen. Merkley. They are represented — daily — in the entries at tracks from New York, Kentucky, Florida and California to the small racetracks everywhere on the sport’s landscape visible most often when 200 people show up in a winner’s circle.

The “subsidy” to which Sen. Merkley refers as a boondoggle permits racehorse owners to depreciate their investments over a period of three rather than seven years. Considering the enormity of the nation’s spending crisis, targeting the owners of racehorses would be amusing were it not so wildly ludicrous.

“Giving Triple Crown treatment to millionaires while workers are put out to pasture?” Merkley blustered. “That’s not right. And it’s not the American way.”

The annual cost of keeping a horse in training in New York is roughly $50,000 and racing is very much an example of an economic dynamic unfamiliar to those who believe that government is the source of all things great and small. This is in every sense the true American way.

The alarming if understated 9.2 percent unemployment rate is in no way the fault of horse owners, who unlike members of the Congress are the central participants in a free marketplace. Every active horse requires a trainer. Trainers employ grooms, hotwalkers and exercise riders. Veterinarians, blacksmiths, purveyors of feed and shippers are ubiquitous. Hopefully, jockeys come into the picture if and when a horse is capable and ready for racing, by no means a given. Note that all the participants are among the 50 percent of Americans who pay 100 percent of federal income taxes.

Owners of racehorses — unlike many of their elected officials, active contributors to the American economy and culture — create jobs on several levels even as they lose money chasing dreams. They also drive a steady stream of pari-mutuel taxes to state and local governments and support racetracks, which employ many thousands of people who pay taxes and create other concentric ripples of capitalist enterprise.

In the current feigned, alarmist partisan movement to reduce federal spending, a gridlocked government larded with waste (A Google search for wasteful government programs yields 3.1 million results.) is a target far more promising — and just — than regulations dealing with depreciation of racehorses owned largely by middle-class patrons of the sport. Unfortunately, in a charged political arena in which horse owners are without representation, they are most likely to be unjustly taxed. That is what passes nowadays for the American way.

The real boondoggle, some would argue, is being elected to the Congress.

Originally Posted on ESPN