What if each year there was a lottery to determine who would pay taxes that year and who would not? Would you enjoy a chance to pay zero tax?
Currently, we have a system where the wealthy pay slightly more in income taxes than the less wealthy, while the lowest income taxpayers can actually receive a tax credit, a cash payment. The problem with that system is that it has done little to address the vast wealth inequality in America where just a few people control the vast majority of the wealth.
Assume a new law gives the Internal Revenue Service authority to implement a tax holiday for some taxpayers, and a tax credit bonus for those receiving credits via a lottery. Each year a number is determined by Congress for those who will granted a tax holiday that year, with a minimum each year of 1 million taxpayers declared winners. Any tax that the winners would have been liable for or bonus tax credits will instead be made up through either sales of securities or by increasing the taxes of all other taxpayers as determined by Congress in its annual budget process.
So, to address the problem of wealth inequality, how could this new authority to run a tax holiday lottery be used?
Essentially, those who have the highest incomes would conversely be given the least number of lottery chances while the poor would be given the most. Now, if we had a society that had resolved to address wealth inequality directly, we might not need this lottery at all, but we don’t. A lottery gives every taxpayer a chance to avoid paying taxes altogether. The lower your income, the greater your chances, but everyone has a chance. Take a look at the chart to get a rough idea of how it might work.
| Taxable Income | Lottery Chances Gifted to each Taxpayer |
| < $10,000 | 500 |
| 10,000 – 50,000 | 50 |
| 50,000 -100,000 | 10 |
| 100,000 – 250,000 | 5 |
| Above $250,000 | 1 |
Now, say that Congress decides that this year 1 million taxpayers, both businesses and individuals, will be given an opportunity to pay zero taxes that year. Each taxpayer’s name and unique identifier is entered into the drawing with one notable wrinkle. Someone whose prior year’s taxable income was less than $10,000 would be given 500 entries while someone with an income over $250,000 would given only one. The lottery would commence and names pulled randomly until 1 million unique names are drawn.
If your name is drawn you have no obligation to file, you are exempt!
If you received a tax credit in the prior year, that credit would be either doubled or tripled however is deemed appropriate to best reduce income inequality, and that amount provided to you as a payment from the treasury.
A Tax Holiday system would not necessarily solve income inequality in a stroke. But importantly for the capitalist system we have, taxpayers would retain every incentive to increase their income to improve their livelihood or business performance as before.
It could however gradually reduce the tax liabilities of those with lower incomes by exempting some of them from tax payments in any given years, and thus increasing the effective taxes paid by higher income taxpayers as the Nation’s tax revenue objective is distributed across a smaller group of taxpayers, one that has been reduced by the now exempt lottery winners. If a portion of the expected tax revenue foregone by the lottery winners, say 10-25%, was exempted from reallocation and instead became an amount—the lottery prize—directly paid to further enhance the tax credits available to the lowest income taxpayers, it could also directly benefit all low income households. True, this would again either raise the relative taxes of lottery losers or require more borrowing (I.e., money creation), but that’s part of the objective: decreasing income inequality.
Yes, it is a gimmick.
Yes, it would take years for such a system to wind down the inequality we already have. Yes, it would be more effective and speedier to resolve the wealth inequality problem by facing it head on and massively increasing marginal tax rates. Yet, and this is key problem, we have no such resolve.
We do have a society that recognizes for better or worse that money accumulation is desirable. A Tax Holiday system does not challenge that fundamental, it merely adds an element of chance that says, the less money you have the greater your chances of not paying any taxes this year. And, if you don’t like paying taxes and want to increase your chances of avoiding them by winning the lottery, don’t accumulate so much wealth.
Jay Walking 