Or maybe your assumptions really ought to be re-evaluated.

Edit: To clarify, these are the sorts of things people often say when their ability to argue their point starts to wane. You might be right on these points, but declaring your experience and the self-evidentness of your position doesn't enhance your argument.

No i'm tired of explaining basic economic theory. ask yourself whether profits and income are a real thing. when you've decided that they are, ask where they come from.

now compare that to poker players shuffling the same amount of money around the table and you'll see that there is a distinct difference between income/profit in a positive sum game (economy) and illusory profit in a zero- sum game.

Right, just like Radiohead tours are only sustainable by fans plowing after-tax earnings into tickets. Calling the tour profit/income for Radiohead and your poker winnings something other than profit/income is arbitrary.

And poker profits are generated from an even larger almost infinite resource that's been around for thousands of years more than Radiohead; people want action.

The value is the act of gambling itself. By risking your cash you provide value to people who want to gamble. Its similar to liquidity providers in markets, who are also taxed.

no the Radiohead tours are sustainable because something of economic value is actually created and then sold to patrons

in a poker community nothing of value is created. it is merely a redistribution of wealth. the proposition is that taxing income/profit is fine/desirable/sustainable but that taxing wealth/zero-income is unsustainable/bad.

there is a good and strong argument that all people should contribute economically to the society they participate in if they have the income to do so and that some players consistently win through greater skill and that they therefore have a surplus and income. i have some sympathy for that argument, but believe it needs to be weighed against another principle which is that people shouldn't be retaxed when they have already paid tax.

also, see dereds argument that if winnings are taxable then losses should be deductible also. and as a practical consideration it makes more sense to realize that the tax revenue and losses cancel (or worse) and that admin cost is saved by declaring the whole system a redistribution rather than income and therefore non-taxable.

not sure i understand this point. but in capital markets, capital gains are taxed and capital losses may be offset against those and future gains. i have no problem with that, especially given that capital markets are a long term positive sum game and that it makes sense for than surplus to contribute a % to the common good.

the value of gambling is entertainment and that's not an economic value. there are no goods/services produced and no surplus funds produced. if we allow the government to assign a value to entertainment then that's a very slippery slope indeed and you may find yourself declaring that trip to the movies to see Beasts & Where to Find Them as income on your tax return and being taxed some government-dictated economic value based on the Rotten Tomatoes score it received...

Losses are deductible against other gambling income.

These are, again, just mostly arguments that Radiohead shouldn't be taxed. Those concerts are also entertainment and don't produce surplus funds.

Huh? The government isn't assigning value to Radiohead or poker. It's the people who go to the concerts and play poker that are. The government is simply taxing the objective and unambiguous money gained, by some, from those events.

But Radiohead should be taxed. They earn income from their labor and should be taxed on that income.

What you're in effect saying is that the patrons who enjoy the music should have to pay tax again on the perceived economic value of that enjoyment.

And of course, they shouldn't. And that's my argument for poker patrons too.

The reason we have taxes is to fund the government. If there was no income taxes, and everything was collected through other taxes like VAT, poker players would be paying those taxes with their winnings. Would you suggest that poker players shouldn't pay VAT? Taxing income is a more efficient way to collect taxes than things like VAT, but serve the same purpose.

yes, we need to fund the government and VAT/GST is certainly a method that virtually every government has become addicted to and we'll likely never see a departure from.

to be consistent with earlier arguments i'll say that i consider VAT/GST to be a horrible idea - both inequitable for consumers with income too low and expenditure too high to save and acquire assets, and expensive for businesses to administer. it's an inefficient and unjust reallocation of resources and taxes not only income, but also debt and wealth.

why not just equitably tax the real net income/profits of employing sustainable resources in the community? and for practical reasons only do so in economic sectors where there is a long term positive sum game (manufacturing, services, capital markets etc) and ignore those sectors where there is a negative sum game (gambling) and it is unprofitable and illogical for the government to seek a tax.

Poker players make real profit and real income in exactly the same sense that Radiohead does. They walk into a situation with less money and then walk away with more. That you want to put boundaries around the poker table does not change this. That you want to call poker "not labor" is completely arbitrary. You invest your time and make decisions that are hopefully profitable.

When Radiohead has a concert, money doesn't appear from out of nowhere. There's not suddenly money where there wasn't before. It's just a redistribution of existing money. Again, it's not as if when the concert ends there's suddenly an extra wad of $100 bills lying that suddenly appears. All the money that Radiohead makes was from money that they managed to get off of other people.

This, even if you wanted it in theory (I don't necessarily agree, but I'm arguing it's irrelevant), would never be doable in practice. It is a major struggle to tax profits. Then someone has to decide what markets are really positive sum games (imagine the lobbying, lawyering, etc involved in this).

but that's what income tax and company tax and capital gains tax and other forms of tax on a proportion of earnings precisely are? it's nothing new.

money and cash equivalents are not economic value in themselves, they merely measure it. the economic value lies in the concert itself which is created and sold for more than its economic cost. such surplus can and should be taxed. radiohead is still generating an income surplus for themselves through the activity which they can recreate in future. the income-earning asset is not depleted and can generate an income again in future. this is good taxation because it can be replicated and sustained and is based on income generated from assets, not by depleting the income-producing asset itself.

let's go back to beans.

if radiohead produce a can of beans and do so for less than the amount they sell that can of beans for, the extent to which they can bring a can of beans to the table for less than the economic cost of selling that can of beans is profit. we can tax them on that profit because they are creating something worth more than the cost of producing it and they can do so again. that's fine. that's sustainable. it also applies to every stage of production, from the metal ore in the ground that makes the tin and the seed that goes into the ground that grows the beans. when you tax such a system, it only makes sense to tax the income produced. if the government said to the bean farmer, hey you made $$ so we're taking part of the farm, then that's very poor tax policy.

to extend the analogy, let's say poker players each bring the same number of cans of beans to the table. we're exchanging beans for beans. one poker player is an expert salesman and convinces the other player that his particular brand of beans is more desirable than the others and exchanges his brand of beans for two cans of the other beans.

but it's all an illusion. the cans of beans are simply beans and all brands are equal in value. the poker players in total have the same number of cans of beans at the start.

if you allow the government to tax gambling incomes, then you are in effect saying that hired goons should be able to saunter into the room and say 'right, who's got all the beans?' then walk up to the dude with more beans and take 1/3 of his cans. all poker players who all contributed those beans look forlornly on as the beans leave the room for no good reason. all the poor poker players wanted to do was exchange their beans with one another. now, as a whole, they have less beans than when they started.

No. Income tax does not tax profits. Capital gains doesn't tax overall profits, just very specific ones.

The economic value of poker games lies in the experience itself, which is created and sold for more than its economic cost. Winning $1 isn't worth just $1. You also get the experience of playing the game and the social environment.

Since winning is worth more than the actual dollar amount won, that surplus should be taxed.

But really, this is an extremely dicey argument. In what sense can you actually say that the concert is being sold for more than its economic cost? What dollar amount are you actually putting on the concert to be able to say that the tickets cost more than the actual value of the concert? And in what sense is that "surplus" actually the part that's being taxed if you don't even have a baseline "value" for the concert?

I found your analogy to be quite strained. There's one piece that you keep going back to which was reflected in the analysis above. You're putting arbitrary "value" on something and you keep insisting that the product is always sold more than what it's worth. I think there's a lot of work to do in actually making this claim reasonable in the context of entertainment value. It seems to me that you would really need to parse that out clearly to make your argument sufficient. Otherwise, you're just throwing in a random value that cannot actually be measured and is probably as illusory as you believe poker profits are.

But they do

Income is the economic profit after allowable expenses derived from selling ones labor.

Capital gains are the profit on sale of a capital asset and that asset value is based on the net present value of the expected future dividends.

Company profits are taxable.

Dividends themselves in the hands of shareholders may be taxed further too, if the marginal rate of the shareholder is greater than the imputation credits already paid by the company.

All seems rather fair and very much in existence to me.

Aaron things are not sold for more than they are worth. You've got it wrong. They are sold for more than they cost to produce.

And you could derive all of economics from that one statement.

Radiohead should pay taxes because they earn income from touring. Winning poker players should pay taxes because they earn income from playing poker. Nobody is saying that concert goers or losing players should somehow pay income taxes on something that generated no income for them.

OK, I hope that the following covers the assertions I'm making in this thread in a little more clarity and detail. The economic theory I've laid out can be applied to any economic activity from individual transactions to micro to macro. It underpins every assertion. While it doesn't cover some of the arguments for taxing gambling, it hopefully sets a better framework to discuss the economic costs of taxing wealth rather than income.


Leading on from my comments above.

Things are never sold for more than they are worth, because the buyer determines that value and initiates the sale every single time. The buyer decides whether a transaction takes place based on what the commodity is worth to the buyer (which is in turn based on opportunity cost).

The seller has two roles. The first is to develop or acquire commodities for a lower cost than buyers say they are worth, and commodities don’t become available for sale unless this happens. The second role is to positively influence the buyer’s perception of value and maximize profit.

The difference between buyer value and seller cost at the point of an actual transaction is seller profit/income. This applies at every economic level from individual transactions, to the microeconomic aggregate analysis of all transactions related to a single commodity, to the macroeconomic level aggregating all transactions and demand in an entire economic system. It also applies to every participant – from individual economic units to sectors including government – and (nearly) all participants are both buyers and sellers.

Stocks and flows result from these transactions. Flows are income (now accurately defined above) and any surplus income becomes stock in the form of assets (resources). These resources can, when rationally employed by sellers (see two roles of sellers), generate further income and accumulate further stocks.

In the above light, optimal taxation policy becomes very obvious. If you tax resources (assets, wealth) then you take away the means of and decrease future income. If you tax income, then it leaves the resources for future income generation intact and growing, and earns tax dollars at the earliest economic opportunity for the government. Income tax also allows sellers the secure and ongoing ownership of their after tax surplus assets/wealth – a very important psychological need and one that governments might ignore at their peril.

The argument against taxing gambling ‘income’ is easily derived from the above – because there is no aggregate income at all in a zero- sum game. Any tax must therefore by definition be applied to the resources (assets, wealth) of the participants, which is fundamentally poor policy (see above).

The argument against GST/VAT is a little more complex, because it introduces an entirely new concept – levying tax on the buyer rather than the seller – which in essence no longer provides an assurance that tax is levied on income. The increased funds required for the transaction may come from wealth or debt for individual buyers. It’s less of a risk because of the strong correlation between income, disposable income and personal expenditure than taxing wealth directly, but the risk still exists on the fringes and income tax in principle is more equitable.

So let’s get back to Radiohead.

Patrons (buyers) decide that the price on the ticket is equal to or lower than its value/worth to the patron and if the opportunity cost of not buying the ticket is too high they buy it. Radiohead (seller) have set the ticket price based on the size of the venue, number of patrons required to fill it, number of shows and what all the market data tells them the demand curve looks like across all potential ticket prices. They set the ticket price to hit the point on that demand curve that maximizes the gap between revenue and the cost of producing the commodity (see CVP analysis).

Now that income/profit is generated it can be taxed, diverting part of that income flow to the common good, while leaving the rest of the surplus for Radiohead to add to their stocks, to be employed in due course for future income earning activity and further flows to government.

In short, there is no similarity at all between a Radiohead concert which generates (taxable) income through the profitable sale of a commodity (in this case entertainment) and the poker community which does not generate income at all.

You could argue that small indi bands which run at a loss for years before breaking up and never earning sufficient income to offset those losses against are analogous to losing poker players and that Radiohead is analogous to winning/professional poker players, but that’s where the analogy ends. The music industry as a whole creates a commodity (music, entertainment) that is worth and sells for more than the cost of producing that commodity and therefore it creates (taxable) income.

Poker (or more accurately the redistribution of assets between players, less rake) in an aggregate sense does not generate any income. Winnings should therefore not be taxed.

Should a casino have to pay taxes on profits from being the house in blackjack? If no, why? If yes, how is that different from winning poker players?

Yes they should. The casino creates a commodity (provision of gambling service) that is worth more to patrons (who consent to rake/edge) than the cost of producing that commodity and is therefore creating (taxable) income.

Winning poker players are part of an economy that creates no commodity, no income and merely redistributes wealth/assets. There is no income to tax. And as stated above, taxing assets is poor policy.

What if local law allows a casino to spread blackjack but the casino can't be a party in the game. The casino charges a player a seat fee to be the dealer and the game is the exact same other than that. Does the dealer/player have to pay taxes?