The non-linear scale on the x-axis is very misleading about the volatility of the taxation.

Interesting. My parents have never been too annoyed with taxes (except municipal ones) but I've heard my mom express that it's unfair to pay taxes on winnings. We don't do that in Canada though.

Imagine if your "gross household product" (GHP) were $32 000 a year. By this graph (and this graph is less than ideal for illustrating the point you are trying to make), you would pay about $2560 in taxes (8%). Depending on the cost of living in your area, that $2560 could probably have gone to something that you would perceive to be of more immediate use, than some abstract "representation" in Washington DC.

Notice that most of the taxes are made up of income tax.

My hunch is that everyday folk do have a pretty good sense of the taxes they pay. Corporations, on the other hand, are full of shit but do a pretty good job of keeping a lot of people convinced that they are hurting. My mom (an elementary school teacher) calls it the "corporate welfare mentality."

It might help that lay folk are actually getting screwed, and it is not that uncommon for most good people to assume that what is happening to them is also happening to others (even corporations, unfortunately).

I don't know all that much about economics, so excuse me if this is a dumb question, but how is the tax/GDP ratio relevant for an individual citizen? I would think a plot of average tax rate vs gross income would be more meaningful.

This problem of course could be completely taken care of if these prize-offering entities included the necessary taxes for one's situation on top of the prize (which would be taxes on the prize value and then taxes on the tax money, which would itself be sort of income received).

Of course they're not gonna DO that, 'cause business loves nothing so much as passing costs onto someone else, but really, that irritation referenced in the post should by rights be directed, mostly*, at the prizegivers rather than the government, because they're the ones advertising their prizes as bigger than what the winner will ever legitimately get**, and they're the ones leaving non-divisible prize items with a potentially-unmanageable price tag.

*I'd kind of like to see SOME kind of exemption for prize items whose value can't be split, for winners who don't have the discretionary income to pay the income tax on a prize, because to do otherwise is to effectively exclude the poor and working classes from actually getting the prizes they win. "Too poor to get to keep a gift" is an abominable concept, and there's a negative psychological effect that happens when you get something and then have to give it away, that isn't there when you never get it in the first place. Straight-money prizes, on the other hand? I don't care if your taxes are a million dollars, you're still a million dollars richer, cry me a river of top-of-the-line champagne.

**thus setting up the government as a target for the same taxpayer wrath that progressive income taxes receive, based on the focus being shifted from "hey, awesome, I won a lot!" to "I would have lots MORE if it weren't for the stinking IRS." Except in cases where the prize is not sellable for the value it's taxed at, they still walk away with more than they came in with, and to complain about the taxes strikes me as the equivalent of Dudley Dursley going "Thirty-six presents? But last year I had thirty-seven!" in Harry Potter and the Sorcerer's Stone.

Why does so much analysis like this assume that people only care about themselves and what they can get out of the system financially? Is it so hard to believe that somebody could oppose a policy on principle, even if it would never affect them?

I am reminded of a man who objected to socialized a while back at some kind of gathering. In the same address in which he voiced his opposition to socialized health care, he also asked for charity to help paying for some medical expenses he had. I'll grant that this was perhaps not the best time, given the point he was trying to make, but it struck me how quick people who commented on the address were to deride him for not being able to see his own interests, and to say that it is exactly people like him who should be most in favor of public health care. The idea that a person could have any political principles whatsoever beyond their own self-interest just didn't occur to a lot of the people in that discussion. I'd see such a person as being so committed to opposing public spending that they'd rather die begging than accept stolen money, but apparently I'm a minority here.

On another point, it's naive to approach taxation as only consisting of money that government directly takes from people. There is also inflation, which is taxation enforced by legal tender law rather than the IRS. A better way would be to track government spending as a fraction of GDP, with the difference between that and taxation being the portion of the tax that is collected covertly and which we can't be entirely sure who is paying.

Could you cite or link to the poll you reference where Tea Partiers gave those estimates? It's likely that they were largely mistaken, but some of the numbers they gave may have been influenced by one or more of the following:

-their own taxes
-statistics including state and local taxes
-statistics looking at government spending (big federal deficits these days)
-attempts to estimate the economic impact of government regulations in addition to taxes

When attempting to account for all costs of federal, state, and local government, Americans for Tax Reform came up with 53.9 percent. http://www.fiscalaccountability.org/cost-of-government
This number might be high, but the Tea Party crowd is possibly more likely to have seen numbers like it.

All of these could potentially account for the higher numbers the Tea Partiers gave. Most people probably do not have a clear idea of all of the different ways that size and cost of government could be discussed. Tea Partiers might think in terms of the larger numbers and might not know the specific number asked for, while the author of this post might talk about only these smaller numbers without considering additional costs of government.

According to this, total government spending from all levels amounts to about $6.1 trillion in 2009, while the GDP for that year was $14.3 trillion.

Since all government spending must come from somewhere, this implies a tax rate of 43%. Federal spending is indeed about half that, but still higher than what is accounted for by taxes alone, at 24%.

"This problem of course could be completely taken care of if these prize-offering entities included the necessary taxes for one’s situation on top of the prize (which would be taxes on the prize value and then taxes on the tax money, which would itself be sort of income received)."

I asked this very same question to a CPA once. He told me that if the offering entities did this, they would just count the (winnings + tax on winnings) total as a new sum and then take an even higher amount of tax on this even higher sum. So, you don't win X dollars plus Y to cover tax. You win (X + Y) dollars, which is then taxed.

So then I asked "okay, what if they sold the winnings to someone for, like, a dollar to avoid this entirely?" To which he answered that this would be a sham transaction and would get the offering entity in trouble for tax evasion.

"“This problem of course could be completely taken care of if these prize-offering entities included the necessary taxes for one’s situation on top of the prize (which would be taxes on the prize value and then taxes on the tax money, which would itself be sort of income received).”

This is doable, but you have to follow through the taxes on the money to cover taxes, then through on that, then through on that, down to where we get under a dollar (as you're allowed to round to the nearest dollar for taxes).

I.E., if you win a $100,000 prize, and you're in a 35% tax bracket:

You owe $35,000 on that $100,000, so they give you that in cash.
You owe $12,250 on that $35,000, so they give you that in cash.
You owe $4287.50 on that $12,250, so they give you that in cash.
You owe $1500.63 on that $4287.50, so they give you that in cash.
You owe $525.22 on that $1500.63, so they give you that in cash.
You owe $183.83 on that $525.22, so they give you that in cash.
You owe $64.34 on that $183.83, so they give you that in cash.
You owe $22.52 on that $64.34, so they give you that in cash.
You owe $7.88 on that $22.52, so they give you that in cash.
You owe $2.76 on that $7.88, so they give you that in cash.
You owe $0.97 on that $2.76, so they give you that in cash.
You owe $0.34 on that $0.97, so they give you that in cash.

At this point you've been paid $153,846 (including the original prize). A prize of that size has a tax burden of $53,846. You pay that, you net out $100,000.

The takeaway here is that it is doable, but it's a LOT of extra money.

Coming in late with my vast game show knowledge:

The general rules on winning prizes on game shows in the US are that 1) you have the right to refuse to accept any prize that you've won, and 2) the show producers can offer you the cash value of a prize in place of the prize if they so desire. Note that point 2 does not necessarily mean that the *contestant* can ask for cash instead of a prize and always get it.

Oh, and there was a special week(?) back in the earlier days of the US version of Who Wants to Be a Millionaire?, possibly around April 15, when the tax preparation company H&R Block sponsored the show, and gave each contestant during the week additional money on top of their stated winnings such that they would effectively be paying no taxes on the announced amount.

I see Good Times ahead!!