Numbers, Lotteries, and the Poor Tax

Why the facts make it difficult to support state lotteries.

State lotteries seem like a good thing for a few reasons: they raise money, give a fun thing to do for folks who like to gamble, and open up options for the poor to attend college or win the big one. But the numbers tell a different story.

We shouldn’t ignore the good things that come from state lotteries. It’s true that many states use lottery revenues to do remarkable things that otherwise would be fought tooth and nail: college scholarships for underprivileged children in Arkansas, the Colorado lottery has raised over $2.4 billion for wildlife development in its 30 year history, and the Iowa Lottery contributes millions to environmental aid, gambling addiction centers, and over $1 billion to the state general fund. In 2009, state lotteries generated about $53 billion in state revenues. People have found ways to use lottery proceeds for apparent good, and that is laudable.

But when we explore the issue more deeply, it becomes apparent that lotteries can and often do more harm than good.

Gambling on Public Services: Hot New 21st Century Trend

Gambling on Public Services: Hot New 21st Century Trend

Who Plays the Lottery?

The most important thing to understanding the conundrum is understanding who plays the lottery. Sociologists estimate that about 13 percent of Americans play the lottery every week, with between 55 and 66 percent of us playing it more than once a year. The average U.S. household spends about $162 every year playing the lottery. Not bad, yes? Well, when we break it down into smaller socioeconomic categories, it gets bad. Low-income households spend on average $289 per year on lottery tickets, while those making less than $10,000 per year (well below the $23,050 poverty line) spend on average $597 per year on lotto tickets. One study out of South Carolina found that families earning under $40,000 accounted for just 28 percent of the state’s population, but made up 53.4 percent of its frequent lottery players.

Add all of that together and you form a picture of a severely regressive tax. Poor people play the lottery in disproportionate numbers with dreams of winning it big to help their struggling families. They are promised that even though they will almost surely never win, their money will be spent on things that will, ultimately, help them or their children.

Brought to you by the Illinois Lottery

Brought to you by the Illinois Lottery

Regressive Taxation

It could be argued that this is still better than nothing. At least it funds education and social projects, right? Only if lotteries aren’t used as a replacement for other forms of state revenue generation. Which is happening.

In North Carolina, the general assembly began, against its promise, dipping into state lottery revenues for its own uses. In Chicago, the zip codes with the most lottery ticket sales are also the most impoverished, with streets lined with trash and thick with crime. Even worse, in some states, lottery revenues dwarf the meager revenues generated from shrinking corporate taxes. In Rhode Island, for example, the state collected $3 from lottery sales for each $1 in corporate tax income.

Perhaps the worst affect of lotteries is the forgotten promises made upon their herald. In many states, lotteries are established with grand promises of providing much-needed funds into education and providing scholarships for the state’s poor. Yet, legislatures tend to then use lottery money not to supplement education spending, but to replace it, leaving a chunk of the state’s public school fund reliant on fickle lottery sales. One CBS report found that in 24 states that dedicated lottery funds for education, only three actually raised more in educational spending.

In fact, our investigation of government spending in the 24 states that dedicate lottery funds for education yields a stunningly bad report card. The percentage of state spending on education is down or flat in 21 of those states from coast to coast.

Down, for example, in the following states: Washington (-6 percent), New York (-5 percent), Missouri (-4 percent). It’s down 3 percent in Florida, Illinois, Ohio, and Michigan and Oregon. Texas is down by one percent.

It’s up in only three states — New Hampshire (+4 percent), Georgia (+ 4 percent) and Tennessee (+2 percent).

Armen Keteyian and Phil Hirschkorn, CBS News

In other words, legislatures promise that educational spending will rise with the lottery. They then impose the lottery, poor people play it, legislators reduce educational spending, then add the lottery funds to it, promising that it will be more than before, which it almost never is. Thus, the poor are made to shoulder more of the burden for public education and other services than everyone else.

But… But…

Of course, it’s important that lotteries are voluntary, and that poor people don’t have to play. Sure, and by the inverse property, rich people don’t have to bitch about paying taxes, and push their state legislatures to lower taxes by establishing a lottery. There’s a psychological element to both sides: playing the lottery promises the total alleviation from poverty, the abject fulfillment of one’s every need for the foreseeable future. The enticement to play is massive for the poor, even if the odds are low. One can’t expect them to just take the Protestant work ethic high-road and sell their microwave and TV just because they don’t need them to survive. On the other hand, it’s understandable that rich folks don’t like giving up their money to pay for things that may be invisible to or not intended for them. Both mentalities are understandable, but ultimately detrimental.

But aren’t I just being like an old turn-of-the-century Progressive, telling poor people what they should and shouldn’t do just the same? Well, yes, sort of. Although I make no claims to the morality of gambling here, I do insist (based on evidence) that lotteries are a form of regressive taxation masked as a game of chance. Some would argue that denying them their fun game of chance is just as paternalistic as Bill O’Reilly dismissing American poverty by saying impoverished people don’t own satellite TV. Who am I–who is Bill O.–to tell poor people what to do with their money?

They would be wrong, though. Lotteries as they exist today are predatory. They are an excuse to rob from the poor, shave some off the top, and give the remaining back to them (or, in the rare case of a winner, give the remaining to only one or two of them!) so that the rich don’t have to pay as much. It is, as Florida Scholars wrote of their own program, the Reverse Robin Hood Effect.