Commentary Magazine


Topic: lottery

Why Do Americans Favor Lower Taxes for Lotto Winners?

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.

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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.

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