The country’s budget deficit is nearing $15 trillion. Flurries of proposals attempting to address our nation’s debt fall upon us every day. Some proposals, however, leave me scratching my head.
Earlier today, Oklahoma Senator Tom Coburn released a report entitled “Subsidies of the Rich and Famous.” (Hat tip: Politico.) The report highlights some government payments paid to and tax benefits claimed by millionaires, and then concludes that they should be reduced or eliminated.
We get the idea. The rich can afford to live less large than the blue-collars as part of a plan to slow down the growing deficit. What Mr. Coburn fails to tell us, however, is that some of the tax breaks he suggests we eliminate would impact not just the rich and famous. They would impact everybody.
Consider eliminating the deduction for gambling losses, says Mr. Coburn. He states that millionaires claimed $21 billion in gambling losses between 2006 and 2009. Let’s assume he’s right. What Mr. Coburn doesn’t point out, however, is that these millionaires must have reported at least $21 billion in gambling winnings over the same period.
As Mr. Coburn tells us, casual gamblers must report all gambling winnings and cannot deduct gambling losses in excess of gambling winnings. If we eliminate the deduction, then taxpayers would have to pay tax on phantom income.
Here’s a simple example to illustrate. Suppose Donald Trump made two visits to the casino in 2010. During the first visit, he won $200,000 playing blackjack. During the second visit, he lost $200,000 playing blackjack. Under current law, he must claim $200,000 in gambling winnings on line 21 of his 2010 Form 1040, and may deduct $200,000 in gambling losses on his Schedule A. If Donald could not take the gambling loss deduction, then he would pay income tax on the $200,000 in gambling winnings. In other words, Donald would pay tax on gambling winnings despite breaking even from gambling in 2010.
Sure, millionaires can afford to pay more in taxes. But what about the millions of non-millionaires who can’t? We’ve seen non-millionaire taxpayers stuck with state income tax bills on phantom gambling winnings in New York and Wisconsin, among others.
Furthermore, removing the gambling loss deduction from the Internal Revenue Code could have a crippling effect on casino revenues. Who wants to gamble when one must pay tax after breaking even?
I applaud Mr. Coburn’s efforts to examine various payments and benefits that our nation’s millionaires receive. I’m sure there are some items appropriate for us to change. With respect to gambling losses, his examination is far too short-sighted.
Mr. Coburn is known as “Dr. No” because he has a tendency to place holds on and vote against bills he views unconstitutional. This time around, I must say no to “Dr. No.”