Lottery Taxes


Lottery is a popular way to raise money for all sorts of things. Its earliest form was a type of gambling in which payment of a consideration (money, property, or work) was required for a chance to receive a prize of varying value, but today’s lotteries typically don’t involve money at all. They are often used to select juries or to award prizes for commercial promotions, but they’re not considered gambling because, by definition, winners are chosen by random selection rather than through the payment of a consideration.

The lottery is often advertised as a way to “win big,” and its defenders point out that, in the end, it’s just about giving someone a shot at instant riches. While that is true, there’s more going on here than a simple impulse to gamble. Whether it’s billboards on the highway featuring Powerball or Mega Millions jackpots or scratch-off tickets bought while paying bills at the local Dollar General, state lottery commissions are not above availing themselves of psychological tricks to keep players hooked.

For one thing, they make the prizes seem incredibly large. They also advertise heavily in neighborhoods disproportionately populated by the poor, black, and Latino. As a result, lottery spending is highly responsive to economic fluctuation, increasing as incomes fall, unemployment rises, or poverty rates increase. Lottery profits can also increase when the top prize is boosted to an apparently newsworthy amount, which in turn generates free publicity for the game.

When state budgets are tight, lotteries can be a handy source of revenue, especially when they are promoted with the promise that a few dollars spent on a ticket will help fund education, public parks, or even veterans’ benefits. But the truth is that a lottery is still a form of taxation, albeit a relatively benign one compared to other state taxes and fees.

It’s also regressive, with those earning more than fifty thousand dollars per year spending an average of one percent of their income on tickets and those making less than thirty-five thousand dollars spending thirteen percent. To combat this, lottery advocates have shifted the message away from arguing that a lottery would float most of a state’s budget and toward focusing on a single line item, usually something popular and nonpartisan like education, while emphasizing that a vote in favor of a lottery is not a vote against public services.