Wednesday, January 31, 2007
Neil Buchanan (George Washington) has a detailed post on the story we blogged Monday about the winner of a free trip to outer space who turned down the prize to avoid having to pay $25,000 in taxes on the $138,000 value of the ride.
As a legal matter, it's completely settled that free trips are "income" and thus taxable. (For that matter, they are also consumption and would be taxed under a consumption tax regime.) As a policy matter, why (and, for that matter, how) would we create an equitable exception for this? Other people have to earn and save $138,000 if they want to take this trip, after paying taxes on their income. This prize-winner was being told that he could take a $138,000 trip for $25,000.
Anyone who thinks that the poor guy should get an even bigger break is free to pay the taxes for him. ... I'm glad that prize-winners are subject to paying taxes on their income under the same rules that apply to taxing everyone else's income, thus preventing the necessity of raising tax rates or increasing the deficit.