The Lottery Tax

The lottery is a state-sponsored game of chance that involves the drawing of numbers for a prize. States hold lotteries to raise money for public purposes, such as education or infrastructure. The games attract considerable controversy, because of their impact on morality and social policy. Some critics argue that the lottery promotes gambling behavior, increases illegal gambling activity, and is a regressive tax on lower-income people. Others argue that, while the lottery may have some adverse consequences, its benefits outweigh these costs.

Lotteries have a long history in the United States, and are today found in every state except North Dakota. They began as a way to raise money for state programs without raising taxes, but in the late nineteen sixties, states’ budgets ran into trouble. Amid inflation and the cost of the Vietnam War, balancing state finances became increasingly difficult. It would require cutting services or raising taxes, which were unpopular with voters. In this climate, New Hampshire, a state known for its anti-tax sentiment, approved the first modern lottery in 1964; thirteen other states followed suit within a few years.

Unlike other forms of gambling, which are generally illegal and discouraged by law enforcement, state-sponsored lotteries are openly advertised and heavily promoted. They offer a variety of prizes, including cars, vacations, cash, or valuable items, and are widely popular. In fact, most Americans play the lottery at least once a year. The lottery has gained such popularity that it now generates more revenue for the federal government than all other forms of gambling combined.

There is something inherently appealing about lotteries, even if it’s just the inextricable human impulse to gamble. In addition, lottery ads are savvy about the psychology of the product: they imply that a large jackpot is a sign of a reputable company, and make use of fear-mongering tactics to encourage players to purchase tickets.

Lottery spending fluctuates with economic conditions. It rises when incomes fall, unemployment rates increase, and poverty levels rise. Moreover, advertising for the lottery tends to reach low-income communities in particular. The defenders of the lottery sometimes cast its opponents as “taxing on the stupid.” But, Cohen writes, that claim is incorrect: it’s perfectly rational for someone to buy a ticket if the entertainment value and other non-monetary benefits outweigh the disutility of a monetary loss.

Rich people do play the lottery (as evidenced by one of the largest jackpots, a quarter of a billion dollars), but they purchase far fewer tickets than poorer people; on average, those making fifty thousand dollars or more per year spend about one percent of their incomes on lottery tickets, while those earning less than thirty-thousand dollars spend thirteen percent. Nonetheless, the wealthy are still important lottery buyers, and the wealthy are among those most likely to vote for state legislatures that support the games. This explains why, since New Hampshire’s launch of the modern lottery, no state has abolished it.