Here’s how I envision the IRS Lottery working: near the end of the tax return, the IRS places a box that the taxpayer can mark if he wants to contribute $2 to the IRS Lottery. He or she either subtracts $2 from his expected refund or adds $2 to the amount he owes. The idea is that by allowing those who owe taxes as well as those who will receive a refund to play, you provide incentive to both groups to get the paperwork in on time.
That’s because on April 22, one week after the filing deadline, the IRS selects one lucky taxpayer with whom it will split the lottery pot. In other words, late filers won’t qualify for the payoff. The government puts its one-half share of the jackpot toward offsetting the federal deficit, and the winner gets his or her one-half share paid over the usual 20-year lottery period. This not only provides the winner with a hedge against blowing the fortune up front; it could also effectively reduce the government’s real outlay by another 50 percent or more, the economist’s rule being tomorrow’s money is worth less than today’s. The winning taxpayer would be chosen by random computer selection.
What kind of fortune are we talking about here? In 1989, according to the IRS’s Annual Report, more than 110 million individual tax returns were filed. For this same year, the IRS issued more than 1.7 million civil penalties for delinquent filing. So even if only 100 million returns were filed on time (a conservative estimate), and only 20 percent of those decided to play the IRS Lottery, that would make the winner’s pot $20 million. And each person has as good a chance of winning as the next, provided he files on time. Since we’re talking here about individual returns (1040, 1040A, 1040EZ)–none of us files more than one individual tax return a year–no one has a better than one chance among however many millions of winning. Unlike other lotteries, you can’t buy more than one ticket. Long odds, but about as democratic as it gets.
This could take some of the tedium out of filing. It would be a way of injecting a small thrill, a soupcon of hope into what most of us would agree is one of the year’s least welcome events. Some filers might even seal their envelopes with good-luck kisses or whisper a few encouraging words before dropping them into the mail slots. OK, that’s going too far. It might prompt some tardy taxpayers to file their returns on time and taxpayers in general to file earlier (just to be safe). Although it isn’t customary to worry about the workload of the IRS, this could improve the IRS’s efficiency, lower its costs a bit and perhaps sweeten its disposition.
It’s not inconceivable that some of the chronic income-tax no-shows might even rejoin the ranks of solid citizens. To help bring them home, the IRS Lottery could be accompanied by a small window of tax amnesty on back-tax penalties. Who knows how many no-shows might be driven out of the brush if the big, blunt Tax Stick were suddenly to have dangling from its end a 24-karat jackpot? For a shot at millions, some certainly. Americans are born gamblers.
Now, there is a touchy subject involved in this proposal. Sure the lottery would be gambling, and that’s going to bother some people. But it’s a legal, widely accepted form of government-operated gambling already sanctioned by many, many states and by the District of Columbia, home of the president, the Supreme Court and the Congress. And unlike most forms of gambling, this lottery has the built-in safeguard against abuse. Remember, no one can play more than once a year. No pawning the family dog to improve one’s chances of winning.
Will the winnings be taxable? Sure they will, like those of any lottery. The taxes on the winnings, in fact, further increase the government’s revenue from the game. This extra tax revenue would provide an additional inducement to the government to seriously consider the IRS Lottery. It’s just one more way the Feds stand to win. And at what cost? The only real risks are borne by those who choose to stake $2 each year. If I were the federal government, I’d ask myself at this point, “Where do I sign?” It’s what the sports commentators refer to as a “win-win situation.” Nobody loses, because nobody has to play the IRS Lottery. Is it going to solve the problem of the federal deficit? No, no one solution will. And yes, it’s gambling, but so are church bingo, betting on the Kentucky Derby and all those games at the state fair. And it would be a moneymaker. It would make money for Uncle Sam, and it would make a whole lot of money for one conscientious taxpayer each year. It’s also a game, and for those of us who choose to play, it would provide a little mystery in an otherwise dreary task, cheap at $2.
But you gotta pay to win.
