Taxing Jackpots vs. Taxing Wealth

Any elected official who thinks the public is squarely on board with higher rates against upper-income earners should consider these results, then, and think twice.

From a Wall Street Journal op-ed by political scientists Brian Gaines and Doug Rivers.  Here is the crux of their findings.  On the one hand:

Sixty-one percent of respondents favored raising taxes on families that earn more than $250,000 per year and also 62% supported the “Buffett rule” proposed by President Obama (a minimum tax rate of 30% on millionaires).

But on the other hand:

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. (The amount shown to each respondent was selected at random from a set of seven possible values.) Respondents gave their answers in dollars, and YouGov computed the implied percentage tax that they thought was fair.

Less than a quarter of respondents chose a tax rate of 30% 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%. Democrats and Republicans differed only a little: The average rate preferred by Republicans was 14%, compared with 17% for Democrats.

And tax rates were similar no matter whether the jackpot was $1 million or $100 million.

What’s even more curious is that these findings actually contradict an earlier study—also by a team of political scientists—that asked people to provide tax rates for different income levels.   There, respondents suggested, on average, that those with incomes of $750,000 or $1 million should have a tax rate of 37%.  And there was a significant difference in the rate suggested by Democrats (45%) and Republicans (29%).

So it does seem like people distinguish between the sudden, unexpected wealth of lottery winners and wealth more generally.  Maybe it appears more cruel to tax those who luck into their riches.

[Cross-posted at The Monkey Cage]

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John Sides

John Sides is an associate professor of political science at George Washington University.