When TV personality Oprah Winfrey gave away 276 new Pontiacs to her audience, some cynics called it just a publicity stunt. But to the audience members and most viewers, it was a delightful surprise.
Imagine their surprise, though, when they realize they have to pay taxes on Oprah’s gift. Each Pontiac G6 is valued at about $28,000. On average, that means that those audience members will have to shell out $7,000, or about 25 percent, in taxes on that “income” that Oprah bestowed on them.
Game show winners face the same requirement. The all-time winningest contestant on “Jeopardy,” Ken Jennings, had amassed a life-changing $1,321,660 as of Sept. 6.But he won’t see the full amount of whatever he wins (he’s still the reigning champion as of this date). With that kind of income, he will face the highest rate under U.S. tax law—35 percent, or at least $455, 000. That’s a lot of “Daily Doubles.”
Of course, a new car for $7,000 is not a bad deal, and more than $850,000 net is nothing that Jennings can sneeze at. Still, the hype over giveaways and game show winnings obscures a key point: The Internal Revenue Service doesn’t care about feel-good stories. It cares only about what it can rake in.
Now, take these two scenarios a step further. In all likelihood, most of the Oprah audience who got cars probably do not have tax attorneys and accountants to help them find ways to beat the taxman.
But Jeopardy’s Jennings now has a good chunk of change. He’s probably going to hire a good tax consultant to help him avoid as much of that $455,000 tax bill as possible.
All of which points to an essential unfairness in the tax code. It’s too complicated for the average American to figure out, and only the rich can afford to hire the tax specialists to help them game the system.
Why not install a flat tax? Then we’d all be winners.