Americans may favor raising taxes on the rich (at least according to some polls), but apparently that stance doesn’t cross over to lottery winners. Brian J. Gaines and Douglas Rivers explain the odd discrepancy in the Wall Street Journal today:
Polls often show that the public favors raising taxes on “the rich,” “millionaires” or “families earning over $250,000.” Last year, billionaire Warren Buffett demanded that we “stop coddling the super rich” and impose higher tax rates on incomes over $1 million per year (and higher rates still on incomes over $10 million). President Obama and most Democrats have endorsed raising taxes on high earners. …
In February, the online pollster YouGov asked a representative sample of 3,500 American adults what they thought would be a “fair amount of tax” to pay on lottery winnings. The survey specified different amounts of winnings, ranging from $1 million to $100 million. …
Less than a quarter of respondents chose a tax rate of 30 percent or higher on any level of lottery winnings. The vast majority thought that a reasonable amount to pay was much lower, with the average being only 15 percent. Democrats and Republicans differed only a little: The average rate preferred by Republicans was 14 percent, compared with 17 percent for Democrats.
If anyone should be paying exorbitantly high taxes, shouldn’t it be a lottery winner, at least according to Elizabeth Warren’s “pay it back” theory? Their financial windfalls are completely comprised of other people’s money for which they personally provided no goods, services, or societal benefit in exchange. Lottery winners didn’t work 80 hours a week for years to accrue that money. They didn’t employ hundreds of workers, and provide health care and livelihoods for their workers’ families. They didn’t risk their personal assets, reputation or self-worth.
So why do Americans seem less eager to tax lottery winners than traditional millionaires? Gaines and Rivers provide a good theory:
How do we reconcile these findings? Is it because lottery jackpots are the stuff of dreams? Critics scoff that lotteries are a (voluntary) tax on innumeracy, and probably many ticket buyers do fail to understand just how minuscule are the odds of winning the eye-popping prizes. Yet people who don’t expect ever to become rich by hard work or careful investment might still daydream about being showered with cash by a megafluke. The wild improbability of lottery wealth might even be why our respondents like such low tax rates.
It’s a fact of life – and an understandable one – that a mailman or a public school teacher who plays the lotto every day thinks he has a better chance of becoming fabulously wealthy by scratching a ticket than through earned income, investment or inheritance. So these people are more likely to identify with the small group of lottery winners than with the much larger portion of Americans who became rich through traditional means.
In other words, people are susceptible to class warfare. This isn’t anything new, and it doesn’t mean the Democratic class warfare strategy is suddenly “working.” Instead, it shows why politicians use these attacks in the first place.
But “not identifying” with a group isn’t the same as resenting the group. Just because many Americans believe they have a better chance of becoming rich through the lottery doesn’t mean they begrudge those who earned their wealth. There is, however, a tinge of resentment in many of the liberal attacks on the rich – a suggestion that those who have earned their money have somehow done it dishonorably. You can see this in Democratic policies that tighten regulations and pile taxes on businesses, while siding with unions even when the leadership is corrupt.
I'm no economist, so I may be off-base here, but in all the talk about the resurgent Buffett Rule concept, I don't see any mention of the double-taxing issue. n nThe investment earnings under consideration in the Buffett Rule are earnings on already-taxed capital. (Same applies to inherences.) n nLottery winnings are newly-accrued capital, never-before taxed, unless you consider the dollar bill in your pocket that paid for the winning ticket to be already-taxed capital.
Actually, it indicates that most Americans have no idea what the actual tax rates on the rich, or even themselves, are. A better question would be to also ask what they think someone who earned the money should pay.
Call me a dour Puritan (I am) but the untold part of this is how the unanticipated windfall (and the publicity thereof) serves to destroy work effort and everything else. Frugal people save and scrounge, but gamblers gamble and hope for the windfall to balance the checkbook, usually just ahead of the sheriff serving notice of the bounced checks…. n nIt is not just that I am a dour puritan, I have seen lives ruined by this sort of stuff, including a girl in my grad program who was engaged to be married but whose boyfriend took their checkbook down to Foxwoods and things went downhill from there. As she called me at 2AM and she wasn't on the list of people whom I promise to wake up for — but did anyway because of the concerns she raised in me — it tells where things had gone for her and where I presumed (correctly) she psychologically was at the time. (There is a lot I am leaving out here, but it literally was the "icewater down the spine" sensation of "holy s***, Ed, you need to be wide awake RIGHT NOW because this is REALLY SERIOUS.") n nMs. Goodman raises a good point here — and my response is 75% tax. Tax the daylights out of this to discourage it — but then, my faith frowns on 'games of chance' with the emphasis that other faiths do on eating pork…. Her larger point is worth mentioning, though, both on its face and as to the costs of gambling to a society. But I am a puritan, though….