Is the Lottery a Tax on the Least Afforded?


Lottery games are great for states, whose coffers swell thanks to ticket sales and winners. But that money has to come from somewhere, and studies show that lottery players tend to be low-income people, minorities, and those with gambling addictions. That’s why critics call it a disguised tax on those least able to afford it.

The casting of lots to decide fates or allocate resources has a long record in human history, and the first known public lottery was organized by Augustus Caesar to pay for municipal repairs in Rome. But it was not until the mid-20th century that modern state-run lotteries emerged. Today, 44 states and the District of Columbia run lotteries. Those that don’t — Alabama, Alaska, Hawaii, Mississippi, Utah, and Nevada (home to Las Vegas) — have reasons for their absence.

Many people see purchasing lottery tickets as a risk-free way to invest money. In fact, the odds of winning a big jackpot are very slim, and playing the lottery can drain your wallet of money you could be saving for other purposes. If you’re spending thousands a year on tickets, that adds up to a significant foregone savings over time.

But the idea of making it big on a small investment is very appealing to some. A couple in Michigan, for example, amassed $27 million over nine years by buying thousands of tickets at a time, and then using a mathematical formula to maximize their chances of hitting the jackpot. In fact, they ended up winning 14 times, although only about $97,000 of that was their own money, reports HuffPost.

A common assumption is that the odds of winning the lottery are equal for all tickets, but that’s not true. The actual odds vary depending on the number of available combinations and how much money is in the prize pool. As the size of the prize pool grows, the odds of hitting it decrease. The odds are also higher for a particular combination if the winning ticket is purchased in a state with high income taxes.

Lottery proceeds can be used for a wide range of purposes, from funding roads to building subsidized housing units. But it can be difficult to balance these needs with the desire to attract players, which in turn requires balancing ticket prices, prize sizes, and the frequency of drawings. In addition, there are costs associated with organizing and promoting the lottery, which typically take up to 50 percent of the total pool. Of the remainder, some goes to retailers who sell tickets, and the sponsor or state may also collect a percentage. And if you win, your state may require you to pay income taxes, depending on its policies and whether or not it collects other taxes from lottery players. If you win while traveling out of state, you might owe both the states you’ve visited and your home state. You’ll have to check the rules in each place to find out how much you should expect to pay.

Posted in: Gambling