Tax Update Blog: Permalink

« Previous · Tax Update Blog Home · Next »

The House always beats the gamblers

November 05, 2009

If Nancy Pelosi has her way, avid gamblers could go bankrupt even if they win. The House of Representatives health plan has a 5.4% surtax on adjusted gross income, rather than taxable income. Gambling winnings are "above the line" taxable income, but losses are "below the line" itemized deductions, which aren't part of AGI. Russ Fox explains how this works out:

Suppose you’re an amateur gambler. Say you’re a college student. You net $45,000 playing poker tournaments. When you determine your annual wins and losses you find that your gross winnings are $800,000 and your gross losses are $755,000. You take the losses as an itemized deduction, and you pay tax based on the $45,000 of income (less your exemption and any other itemized deductions).

Under the House Health Care Plan (aka PelosiCare), the hypothetical gambler would be hit with a 5.4% surtax on his $800,000 of Adjusted Gross Income, or $43,200. Ouch.

Unmodified AGI is an awful income base. Not only does it clobber gamblers, but it also can whack taxpayers with investment interest expense, which is also below the line. But stupidity and unfairness are little deterrent to legislators.