The Lottery and Taxes
A lottery is a form of gambling that involves drawing numbers at random for a prize. Some governments outlaw it, while others endorse it and organize state or national lotteries. Lottery prizes can range from a modest cash sum to a substantial house or automobile. Most states regulate the lottery to some degree.
The casting of lots for decisions and fates has a long record in human history, including several instances in the Bible. But the use of lotteries for material gain is more recent, although not without its supporters. The first recorded public lotteries were held in the Low Countries in the fifteenth century, for purposes ranging from building town fortifications to aiding the poor.
As states searched for ways to maintain services without raising taxes, the lottery was promoted as a “budgetary miracle,” a way for politicians to create revenue seemingly out of thin air. State officials pointed to the popularity of lotteries as proof that people would willingly spend their money to win a chance at a big prize. This was an idea whose time had come, they claimed, as voters had become increasingly anti-tax and averse to higher incomes.
Lotteries were also an attractive source of money because they were largely voluntary. Unlike other government-sponsored gambling activities, the lottery offered the opportunity to participate at a very low cost: a ticket typically costs less than one dollar. Many states even offer scratch games for as little as a penny.
But the fact that people would freely hazard their hard-earned money to try to win a prize that might not arrive at all led some to view the lottery as a form of hidden tax. As a result, the lottery became a target of antitax activists.
State lawmakers saw the problem as one they could not ignore. In 1964, New Hampshire approved the first modern state-run lottery; thirteen more followed in quick succession. These states were located primarily in the Northeast and the Rust Belt, all with reputations for being tax-averse.
Lottery advocates argued that, when it comes to the bottom line, there is no difference between lottery money and taxes, as both fund essential public services. But this claim was a bit deceptive. As Vox’s Alvin Chang recently reported, research has shown that lottery money is disproportionately concentrated in low-income and minority neighborhoods. It is also often used to reward police departments, a factor that has contributed to racial profiling and increased friction between police and some communities.
Rich people do play the lottery, of course; they have been responsible for some of the largest jackpots (one topped a quarter of a billion dollars). But they buy fewer tickets than the poor, and their purchases represent a smaller percentage of their incomes. On average, people making more than fifty thousand dollars a year spend about a percent of their annual earnings on tickets; those earning less than thirty thousand dollars spend more than a third of their incomes.