Last month, one man became an instant billionaire, while states participating in the Mega Millions lottery bagged significant revenue and poor people lined up to pay for it. In the midst of the excitement, it is easy to forget that the real purpose of lottery jackpots is taxes.
In the past, this form of small-time gambling was called “playing the numbers.” Strips of paper and runners were the technology used by people who had few other options to buy a little entertainment and a little hope for a few cents every week. Gangsters took a share off the top. The cash that changed hands rarely resulted in tax revenues.
Lotteries are a tax masquerading as a similar innocent form of affordable entertainment. Lottery companies run the game and keep a fee. The remainder off the top, before winners are paid, flows directly into government coffers. That is the definition of a tax.
Though each ticket is bought voluntarily, buyers are actually paying taxes as well as buying a chance to win more than they pay. Unlike with the numbers, records are public so more taxes can be collected on the winnings.
In 1995, lottery revenues nationally totaled $29.8 billion. By 2016, with lotteries legal in 44 states, that total had risen to $72.7 billion.
If statistics don’t include children under 18 or the 40 percent of adults who don’t normally play, per capita spending is at least $600. Those who earn less than $30,000 a year spend as much as four times more on tickets than those who make over $75,000.
Religious opposition to gambling rarely has stood in the way of using lotteries to fill public coffers. Neither has any sense of fairness. Lottery tickets cost the poor a much higher percentage of their disposable cash than the rich, making lotteries a remarkably regressive tax policy.
American tax policy has become more regressive as income and capital-gains tax rates have been cut, benefiting those at the top, while more of the tax burden has been shifted to payroll and sales taxes, falling heavier on those who earn the least.
The fun of dreaming about being a billionaire should not obscure the blunt reality that lotteries are just one more way taxes have been shifted away from those who are living their dreams to those who rarely will.