Tax Analysts Blog

Lotteries Are Winners, Except for the People

Posted on Aug 7, 2013

New Mexico last week was touting the fact that its lottery netted a record $43.7 million. The absent minded politicians proudly noted that the money will be used for college scholarships for poor kids. Isn't that great? No actually, it's not. You see the lottery system is a big fat scam. It takes money from poor people. Am I the only person who finds it bizarre that the government would raise money from a regressive lottery and then celebrate by giving the money back to the poor and dispossessed in the form of scholarships? Don't get me wrong, I do not care if you gamble. But lotteries -- as revenue raisers -- are designed to hurt the poor. If scholarships were so important, why not use real taxes on income, sales, or property to pay for them? Because politicians are cowards. The public is so jaded and cynical that no one calls them on it.

Here are a couple of things you should know. First, the rich don't play the lottery because, well, they are rich. They are not waiting for their number to come in. Second, many poor people do not realize that their number is never going to come in. Your chances of winning the MegaMillions or Powerball are about the same as being eaten by a shark and tiger on the same day you pitch a perfect game in the World Series. The government -- our government -- entices poor souls to hand over their money -- when there is no hope of a return. I would have more respect if the government enticed people to put the money in a 401k or even under a mattress. Instead, the government uses the 7-11 as a money exchange.

Again, I do not care if you gamble. Heck, you can do anything you want as long as you are not hurting anyone. But liberal politicians want you to gamble because they can raise money for their agenda. Sadly, conservative politicians want you to gamble because they can raise revenue for their agendas. Everyone wins except those poor desperate spirits standing in line at the convenience store.

Read Comments (5)

What would financial advisers say?Aug 6, 2013

David, I couldn't agree more. For more on this topic see "Taxing the Sins of
the Poor," Tax Notes, March 20, 2000.

david cay johnstonAug 6, 2013

David, absolutely right. For more see
"Lottery Pays Big, Corporate Tax Not So Much," other writings by me and the
smart DanLeDuc (if memory serves) Philadelphia Inquirer coverage from 1992 +/-
showing the large share of income the poor spend on lottery tickets.

edmund dantesAug 6, 2013

It's much worse than you stated. First, all the winnings are taxable and none
of the ticket purchases are deductible (unless you win). Second, the amount
that the government skims from the pot is far higher than what the house is
allowed to win in Vegas. Finally, and worst of all, they always advertise the
payout as the sum of periodic payments, without adjustment for the time value
of money. The true value of the pot is what the lump sum payout is. A private
business would and should be prosecuted for fraud if they advertised in this
way.

But having said all that, the lottery has one important virtue. It's
voluntary. If you don't like it, you don't have to play.

George WhiteAug 8, 2013

Amen. Lotteries are a voluntary tax on the poor.

David BrunoriAug 8, 2013

Dantes, Thank you. One quibble. You say lotteries are voluntary. That is true
for most people. Unfortunately, for a not insubtantial minority, lotteries are
addictive. That makes their use all the more heinous.

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