State Lotteries: Predatory Dishonesty, by the Numbers

Jan 12, 2016

The Powerball payout has reached the jaw-dropping, mind-numbing (insert your favorite hyper-adjective here) level of $1.4 billion. Tragically, state lotteries are one of the most sinister and unfair ideas our elected officials have ever had. And simple, straightforward numerical thinking would have clarified everything. Let us count the reasons I feel this way:

1. It’s a TAX. Today’s lotteries were largely created to fund education. They bring in revenues because they take in much more than they pay out in prizes. Some quick research suggests that about two-thirds of the amount wagered is paid out in prizes, with about 5% for “administration” and 30% to state coffers. By comparison, most casinos pay out much more – about 95% to 98%, depending on the game. In my book, the difference between the 35% or so that the states keep and spend and the 2%-5% the casinos do is a tax – yet it was never pitched that way.

2. It’s a REGRESSIVE tax. More quick research shows clearly that lower-income people spend a greater share of their income on lotteries than the more affluent. (They may even spend more in absolute dollars, let alone a percentage of income.) In my book, that makes it not just a tax, but a regressive tax – and it was certainly never portrayed that way.

An aside: I find it shameful that most progressives, the group most vocal about increasingly uneven income distribution, are silent about this most regressive of taxes. Never mind the “no new tax whatsoever” Tea Party dévotées. Millions of people on each side happily pay this totally voluntary tax.

Another aside: I note that some states have bulletin boards in poor neighborhoods advertising the lottery by saying, “This could be your ticket out.” That’s not just shameful, it’s predatory.

3. “Your schools win, too.” This may be the most disingenuous assertion of all. There’s virtually nothing to prevent state legislatures from offsetting the lottery windfall by reallocating general funds away from education – after all, all dollars are green. Not surprisingly, the empirical evidence (click here & here, for example) suggests that in the long run lotteries don’t contribute beans to state education.

So as you plunk down your Powerball money, remember that you’re participating in a real-life Hunger Games, on steroids. And believe you me: if I win the jackpot, I’m not telling anyone.

“Painting with Numbers” is my effort to get people to focus on making numbers understandable. I welcome your feedback and your favorite examples. Follow me on twitter at @RandallBolten.