Lottery is a new tax on false hope

By Mississippi Center for Public Policy
May 26, 2017

By Dr. Jameson Taylor

Every year my aunt sends me $5 worth of lottery tickets for my birthday. One year I won $2; another year $1; this year, I won an additional ticket, which also proved a loser. The closest I have come to recouping my aunt's investment is the year I won $4. I was thrilled, but not as thrilled as I would have been had she sent me cash instead. I just don't have the heart to tell her that her birthday present is little more than a tax receipt printed on fancy, scratch-off paper.

 A lottery is only good for one thing: concealing the creation of a new tax. We've all heard the stories of how much revenue a lottery could generate. Governments generate revenue in essentially three ways: taxes, fees and fines. According to the Tax Foundation, the legal definition of a tax is that its primary purpose is to raise revenue. A fee, on the other hand, is "a charge imposed for the primary purpose of recouping costs incurred in providing a service" while a fine is "imposed for the primary purpose of punishing behavior." Based on these distinctions, the Tax Foundation concludes, "The lottery is in part a tax ... the classic definition of a tax, upheld in nearly every federal and state court."

The North American Association of State and Provincial Lotteries boasts that 27 cents of every $1 spent on lottery tickets goes back to the government. This payment is not to be confused with taxes generated from winnings. In other words, state-run lotteries impose a 27 percent tax on the mere act of purchasing a lottery ticket.

It is irrelevant that buying the ticket is voluntary. Taxes are imposed on all sorts of voluntary activities, ranging from using a phone to going to the movies. What is unique about a lottery is that it is a state-run monopoly on a nonessential service -- very different from natural monopolies, like water and electricity provision, with high startup costs. The purpose of the lottery monopoly is not to provide for a public need or to protect the public welfare, but to generate revenue. It's a tax.

Moreover, the lottery is a bad tax. It's inefficient, with much higher administrative costs than other forms of taxation, and it encourages nonproductive, if not downright destructive, behavior.

Let's look at a similar case: the ongoing debate over marijuana legalization. Economists believe marijuana legalization could generate billions of dollars in tax revenue. In 2016, Colorado collected $200 million in taxes on $1 billion in "legal" marijuana sales. That's a lot of money that could be used to fund roads and education. But at what cost? As with the lottery, some people would become addicts. As with the lottery, sales would drain money from other, likely somewhat more productive, purchases and activities. As with the lottery, lower-income, less educated users would consume a disproportionate share. In the case of marijuana legalization, the government would be condoning and profiting from a questionable activity. In the case of lottery legalization, the government would be initiating, advertising, promoting and bolstering a questionable activity.

While lottery advocates claim "people from all walks of life play the lottery,” they often sidestep the question of who plays the lottery most frequently. (As I mentioned, even I "play the lottery" once a year on my birthday.) Research shows that those in the lowest income bracket play 2.5 times more than everyone else and that "increased levels of lottery play are linked with ... males, blacks, Native Americans, and those who live in disadvantaged neighborhoods." A recent 10-year analysis of the New Jersey lottery confirms the typical player has a below-average income and lacks a college degree.

Those who tend to play the lottery most often, it seems, are either poor or think of themselves as poor. In this respect, the lottery is a tax on false hope. And while it may not be the government's business to tell people what or who to hope in, government shouldn't be monopolizing and encouraging such deception.

We already have enough taxes in Mississippi, and we already have enough false hopes. Let's not add anymore with a lottery.


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