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.
{ 14 comments… read them below or add one }
Well, the difference could be, and probably is, due to the very well known fact that people don’t really understand percentages. I don’t understand why they used different methods to solicit opinions when they are ultimately interested in tax rates.
Isn’t the most obvious explanation that people resist higher taxes on any group that they perceive they are or may be a member of? Never under-estimate the influence of pure selfishness.
i think it is pretty clearly this ^.
taxes on large salaries are taxes somebody else will pay. taxes on lottery winnings are taxes i will pay.
Seconded.
Raising taxes is viewed by many as a tough choice. At the same time, many people feel that tough choices are necessary. It’s the nature of tough choices that most people don’t want to do the action, if considered in isolation.
Has any research been done on the economic backgrounds of people that play the lottery? Just anecdotally watching the people buying lottery tickets, my impression is it’s generally more blue collar people than white collar professionals. I’ve observed this in my family compared to my wife’s family. People in my family, all of whom are college educated with white collar and skilled service sector jobs, only tend to buy lottery tickets when the jackpot is very large (say over $50 million or so). My in-laws, on the other hand, are more blue collar and work union jobs (only one or two people have college degrees) and not only do they play the big jackpot prizes, they also play the smaller lottery scratch-off games on a regular basis. I always wondered if this was the norm or just idiosyncratic among my relatives.
I’m puzzled that you think there is a contradiction here. On the one hand, people favour taxation of high incomes earned in the context of market-mediated co-operation in which some people have an unfair advantage (family background, genes, whatever). On the other people tend to deprecate the taxation of high winnings in a game of pure luck in which no-one has an unfair advantage. So people favour taxation that corrects for unfair advantage. I’m not sure that I have the intuitions down exactly there, but something like this explanation has to be better than suggesting brute inconsistency. I’m actually surprised that people favoured taxing lottery winning at all.
I think Chris Bertram, Andrew Gelman, and Reuben make excellent points.
Is the last sentence of the post meant to be provocative? The suggestion seems to be that George W. Bush and John F. Kennedy didn’t “luck into their riches.” And, as Chris Bertram says, even people who get rich without being born rich are lucky in all kinds of ways.
Chris: It would have been better to say “seem to contradict,” since at the end of the post I suggest why people would make this distinction (although your comment states the distinction much more articulately).
Erik M.: Sorry, I was just trying to find synonymous ways to describe the experience of winning a lottery. Obviously, a lot of people “luck” into wealth in other ways.
I think there’s a good chance many people don’t know what the present top income tax is, and think that taxes on the rich should be raised but erroneously believe that said rate is say 5%.
It’s like how the majority of Americans support cutting foreign aid, but when asked as to what percentage of the budget they think foreign aid consists of, they massively overestimate it. When asked as to what level they think it should be cut to, they support a lower level still much higher than the status quo. What should we infer from that about what Americans truly support? I think the best answer is “very little”. Most people don’t have consistent ideas about what the optimal size and scope of government is, instead they have vague affiliations to certain concepts which can result in vastly different policy prescriptions depending on your interpretation. Hence why you get partisans of both sides claiming that they represent the real preferences of America, but all they’re doing is citing the opinion data that showcases one aspect of peoples’ inconsistencies.
I would tax the lottery at a lower rate than wages because a wage earner gets that much every year, while a lottery winner has to stretch it out over the rest of their life. The marginal dollar should be worth more to the lottery winner (disregarding whatever discount rates make lottery players different from high earners in the first place).
I think that this comes partly from anchoring and framing. If you say that someone has won 50 million and ask how much of that should immediately be taken away from them, you’ll get a different answer to if you say, “There’s an enormous budget deficit, and the only way to close that without unrealistic growth levels will be slashing public spending or raising taxes. How much tax do you think someone should play if they earn 50 million dollars through hard work? That’s interesting. Now can you tell me how much tax you think someone should pay if they win 50 million through chance?”
My instinctive reaction to the question was: the government runs the lottery! The tax should be zero, since the law that set it all up decided how much of the money gambled ends up in the Treasury.
Then I realized that it’s the Feds taking their chunk of a state lottery. But that part of the process was quite a bit slower. Too slow to override my idea of what’s fair.
This discussion might have touched on capital gains–which are to a large extent the result of luck, or at least do not involve actual work. In the UK this would have been referred to as ‘unearned income,’ and the conventional view was always that unearned income should be taxed at a higher rate than income earned by the proverbial sweat of your brow. I see no justification whatsoever for capital gains being taxed at a lower rate than earned income.