Monday, April 16, 2012

The idiocy of estate taxes as illustrated by the lottery.

Recently, we had something of a record lottery... $640 million or so.

While three different tickets won, for purposes of this exercise, I'll use a single winner for all of it as the example.

Congrats!  You just won $640 million dollars!

The people of this country, as generous as we are, spent an estimated $1.5 BILLION to win that amount.  The various taxing agencies made $860 million or so at the jump.

For the winner, if you take the lump sum (And I believe it would be insane NOT to take the lump sum), that $640 million was reduced to about $347 million after the fed and the states feel compelled to take another $293 million in taxes and you figure in the "lump sum v. annuity" penalty.

With me so far?  That's $1.153 billion in taxes this ticket has already generated.

So, of the money this ticket has generated, 77% or so of that $1.5 billion figure has already gone into taxes... not including state income taxes, if your state has any.

So, let's assume the fine folks in Olympia (and, apparently, in this state, if you get $100M plus, you've got to pick it up in Oly) hand you a check, you're walking out the door, and you drop dead.

Hey.  It happens.

Guess what?  State and Federal ESTATE taxes kick in, and you lose AT LEAST ANOTHER $173.5 MILLION!  That's right... State and federal taxes will have taken $1.326 billion out of the total taken in for this ticket... or, taxes up to 88%+.

So, this ticket... this one piece of paper that has already generated state and federal taxes will not confiscate ANOTHER $173.5 million of money the state and federal governments have ALREADY TAXED, leaving you (actually, you heirs) with, out of the $1.5 billion spent on this ticket and the $640 million you "won," $173.5 million.

And as long as that figure stays over what, 4 or 5 million?  Any time anyone with that kind of cash dies, the government gets around half!

Not that I'm going to win this kind of cash, you understand, or much of any kind of cash, really, but I prefer the English system where, as I understand it, lottery winnings are tax free, because the PURCHASE of each ticket is taxed... so government makes their money up front.

The idea that our government can tax the same dollar repeatedly is absurd on it's face.  Is it any wonder so many people work so hard to move their money off shore?

Imagine how much better off we'd be if the government tax system approached equality and fairness... and, by the way?

Taxing the rich, who do not use most taxpayer services, more then we tax the poor, who use them the most... or not taxing the poor ANYTHING, which gives them no skin in the game and just strengthens the entitlement aspect of our society... is NOT fair, no matter how much the poor want the government to GIVE them more of OUR money.  (And no, I am not, and am not likely to become, "rich" or have an estate that the taxers will notice when I leave this mortal coil, so to speak.)

Just sayin.

6 comments:

Martin Hash said...

And I'm just sayin' that dead people don't care what happens to their money... It's the people who weren't lucky, who didn't earn it, who didn't steal it, who didn't do anything what-so-ever for that money. Those are the people who care.

There's no right to establish a dynasty in the Constitution. This country is not going to hang because of Marxism - it's going to fail because the nouveau aristocracy gave the Marxists the rope.

Jack said...

I think they're called: "Elitists", Martin.

Haven said...

I'm no lottery expert (never played), but there seems to be a lot wrong here. A few things that come immediately to mind:

1. The difference between ticket revenue and payouts is called profit. While some goes to various government agencies (not all government income comes from taxes, I find it a stretch to call lottery profits from willing game participants 'taxes') some also goes to the retailers and some to cover marketing and operating costs.

2. The lump sum payout is not penalized, but what the jackpot is worth today. They advertise what it _would_ be worth after 30 years of annuities have built up, voluntarily not exercising those annuities is not a tax, that money does not yet exist. You're free to go invest it yourself and maybe make even more.

3. The jackpot isn't the only winner. Many other non-jackpots are paid out all the time (seems 60% total payout for Mega Millions), that's the one your friend/wife/coworker is always bragging about having won last week.

Claims of 88% with some seriously fuzzy math wouldn't have anything to do with the Rs today not even wanting to debate a 30% federal income tax floor for the superrich would it?
http://www.nytimes.com/2012/04/17/us/politics/buffett-rule-debate-blocked-by-republicans.html

Just a guy said...

God... I LOVE a challenge!

1. The difference between what the winners get and what the government gets is called "revenue."

The government, of course, has a wide variety of sources of revenue; this is but one of them.

The government isn't a private entity, thus "profit" doesn't enter into it.

And, at the end of the day, the fact remains, unassailed by you: in this scenario, the application of the estate tax means that the government would get over 88% of all the money spent on the lottery.

If a "charity" did that, they'd be indicted.

2. Again, you're engaging in a rhetorical exercise: "penalized... taxed.... confiscated," no matter what descriptive term you use, it winds up in precisely the same place.

Again, take the annuity and you get the entire amount, minus the absurd tens of millions the government has to rip off up front in ADDITION to the almost billion dollars in "profit" they've ALREADY made.

3. I grant the point that other winners in the lottery are chosen and paid out of this pot. And likewise, those who win enough are also TAXED the same way... the government getting what amounts to a HUGE chunk of the lottery winnings IN ADDITION to the massive chunk they, again, take up front.

Claims of the government taking 88% IN THIS SCENARIO wouldn't have anything to do with the senate not even bothering to do a budget for the last three years, would it?

Or democrats destroying our economy and burying generations in debt, would it?

No.

Claims of 88% going to the government, even if distributed to other winners (it still goes to the government, even if it's for that purpose) remain the same.

I repeat: the idea of the government making hundreds of millions off this; taxing it AGAIN when you win, and then taxing it AGAIN when you die?

That kind of rip off can only be a democrat's idea of nirvana.

Kriss Mitchell M.Ed., CRC said...

Then you consider the farmer. Every year the farmer pays property tax on the land they farm. The crops they raise and sell are subject to income tax. Every piece of equipment they own has had sales tax paid on it. They pay fuel tax on the thousands of gallons of fuel they use every year. Then when they die, depending the market value of the land, their descendents may have to sell the land to pay the inheritance tax. That farmer most likely has children who have chosen farming as a career and their livelihood depends on inheriting that land. When is enough enough? That same land gets taxed every year and every time it is passed on. There is something wrong with this equation.

Haven said...

No.

"Revenue" is basically just the summation of the ticket sales.

You start out saying that there is $860 million that was made by taxing agencies. This is simply not true. You arrived at this by subtracting the annuitized jackpot ($640 million) from the estimated total ticket revenue (1.5 billion, which I do not know if that is correct but we'll go with it) . Well first of all there are other winners. Do these other winnings not also subtract from that which would go to your 'taxing agencies'? Second of all (and this works in your favor, but is still an error on your part) that $640 million, yeah it does not even fully exist. It's what the money _would_ be worth. Keep that in mind. You think someone took part of the jackpot from the winner when they accepted the lump sum, well who took it? No one. It doesn't exist. Interesting 'tax' when nobody collected any money. Thirdly, nowhere do you factor in operations overhead, marketing costs or the kickback to the retail outlets (these are whole number percentage offsets).

I have no idea what the exact taxable percentage would be (in one cycle) on all lotto payouts vs what was collected. And neither do you.

You seem to think the lottery is a ripoff. Well, of course it is. But guess what, people pay into it only as much as they want, whenever they want and they apparently have fun doing it. Oh yeah and I guess some people get rich sometimes.

That's the worst kind of ripoff!

I do indeeed assail your 88% as basically a guess. But that's a yes on the Rs not being interested in even _debating_ a 30% federal income tax floor for the superrich right?


p.s.

The NCLS (http://www.ncsl.org/issues-research/econ/lottery-payouts-and-state-revenue.aspx) gives a US average net proceeds percentage of 31.5% (and that excludes some overhead costs), starting from there and adding your death hypothetical would probably give a reasonable back of the envelope guess.