Its my understanding that the US taxes its gambling winnings. Australia does not, and Im not sure why. Anything that makes less people gamble, provides more revenue to the state, and gives equality to earnings is beyond me.
Can anyone think up reasons why they wouldnt want to, other then to piss off a few big time punters i guess?
Just a guess . . .
Because if gambling winnings are taxable, people who expect some kind of rationality in the tax system - like the voters, poor saps - might expect gambling losses to be deductible. They might even press for this. If there’s enough saps they might even create significant political pressure and, if so, they may be saps but they can’t be completely ignored. And, since gambling losses among non-professional gamblers tend to exceed gambling winnings, the net result of all this would be a loss of revenue to the state.
There’s also the practical difficulty of enforcement.
The point made by UDS is probably most relevant, there are however, other factors that I think contribute.
You assume in the OP that the state would want to stop people gambling. All legal gambling is run by businesses and we all know how much money these businesses make (they are high profit businesses). Gambling probably contributes quite significantly to the economy and if winnings are taxed it’s more than possible that people will stop gambling.
In the UK you used to have the choice of either paying tax on your stake OR tax on your winnings. This tax was abolished in the last year or so.
Are you asking about income tax or Goods and Services Tax?
I’m not convinced gambling contributes quite significantly to the economy. They might makes money, but it’s only redistribution of existing wealth from the patrons to the casinos owners and their employees. What casinos “produce” is entertainment, which is hardly a vital product (I mean, if you close down all the power plants, that will have a significant impact on the economy). In the absence of casinos, this money would be redirected towards other productions. They also probably attract some foreign tourism (if the place is famous, like Las Vegas), and at least make the existing foreign tourists spend more.
But is their global contribution to the economy that important? I’m not sure.
Also, you can taxe gambling winnings without taxing winners directly . For instance by having casinos pay a specific taxe in some form or another, based on their turnover. I don’t know if it’s done somewhere for casinos, but it’s done here for games like lotteries. You aren’t taxed on your wins, but a specific taxe is paid by the company (that other “regular” companies don’t pay) , resulting in less money being given back to the winners. I wouldn’t know if the same thing exists for casinos.
Why would anyone assume it is the natural state of things that everything be taxed?
Simplifying, income tax falls into two major categories: earned income (from personal work) and unearned income (from investments). Clearly lottery winnings would be “unearned income” but if you tax them as such then you should be consistent and allow the cost of lottery tickets to be deducted as losses or costs. I gather the government prefers not to do this for several reasons. One would be that it would encourage this type of activity and also that it would be difficult to keep track of and too easy to cheat. So the government just looks at lottery as a redistribution of money which is better not taxed.
Another point is that, very often, it is the government directly running the operations or getting a cut, so they get their cut right at the source. In Spain they run the lottery directly and keep 30% of revenues while distributing 70% in prizes. In other places they may license opeartors who pay the government the taxes. So, the government does get their cut. They always do.
Same in Germany for lotteries and casinos: the state gets its cut from the lottery society/from the casino and in return the winnings are tax free. Makes sense for tax collecting purposes: it is much easier for the state to get a very few licensed entities to cough up than to try and go after individual winners.