By BRIAN J. GAINES And DOUGLAS RIVERS
According to the headlines, three winning ticket holders in the March 30 Mega Millions lottery will split $656 million. Actually, the lucky winners will get quite a bit less—the payout will be reduced by about 35% to cover what they owe in federal income taxes, not to mention what they will owe in state and local taxes. Is this fair?
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 superrich” 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.
Yet advocates of more progressive taxes rarely say exactly what would be a fair rate of taxes. They believe it should be more than it is now but tend to be a little vague about how much more. And as for the polls—do they imply that Americans want the new mega millionaires to pay more than 35% to the feds?
It turns out that most Americans do not think that 35% or anything close is a fair tax rate, even for bizarre windfalls such as winning a lottery. 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.