The Lottery Is a Taxpayer’s Tax


In the United States, people spend about $80 billion annually on lottery tickets. Some play for fun; others believe it to be a way to win money and change their lives. But the lottery is not just a game, it is also a form of taxation that affects poor and rich alike. Many who have won the lottery say that they have incurred huge tax bills and lost most of their winnings within a few years. Some even go bankrupt.

The idea of determining fates and making decisions by drawing lots has a long record in human history-Nero loved lotteries, for instance, and the casting of lots is used for everything from selecting slaves in the Bible to deciding who gets Jesus’ garments after his Crucifixion. But lotteries as a means of raising money for public purposes are much more recent: the first state-run lottery in modern times was launched by New Hampshire in 1964, and thirteen more followed in quick succession. During the late-twentieth century’s tax revolt, lotteries seemed to offer a fiscal solution that would not provoke an angry backlash among the public.

When a lottery is established, debate and criticism focuses on specific features of its operations-the problem of compulsive gambling and the alleged regressive impact on lower-income groups in particular. These concerns are both reactions to, and drivers of, the continuing evolution of lottery practices.

To operate a lottery, a state legislates a monopoly for itself; establishes a public agency or corporation to run it (as opposed to licensing a private firm in return for a cut of the profits); starts out with a modest number of relatively simple games; and then, prompted by pressure from players for more options, progressively expands its offering of different games and types of prizes. The result is an industry that has become a major force in American life and a source of endless controversy.

Those who play the lottery do so at their own risk, and those risks include becoming addicted to gambling, becoming destitute, or even losing their homes. Studies have shown that lottery sales are sensitive to economic fluctuations: when incomes fall, or unemployment and poverty rates rise, lottery play increases. In addition, lottery advertising tends to focus on low-income neighborhoods.

The wealthy do buy lottery tickets, of course; one Powerball winner took home a quarter of a billion dollars. But they play fewer tickets than the poor, and their purchases represent a smaller percentage of their incomes. Moreover, as the financial company Bankrate points out, the wealthy spend far less of their incomes on lottery tickets than on luxuries like dinner at a top restaurant or a vacation to Paris. As a result, they are not as likely to be swept up in the wave of gambling addiction that sweeps through lower-income communities.