Lottery

Great Debates
1

During the Revolutionary War one of the more popular way to raise funds was to hold a lottery. Today most every state lottery is suppose to help pay for education. Why can’t lotteries be used to pay for other public works? The state needs a new highway? Well why not create a lottery to pay for the road? The state needs to repair the capital building? Let’s make a lottery and use the funds for repairs.

Now of course I don’t think a lottery can replace all forms of taxation. But perhaps it could be used as some sort of supplamental income for specific tasks.

Marc

2

A lottery is one of the most regressive forms of taxation extant; its burden falls overwhelmingly and disproportionately on the poor.

3

It’s funny you should mention that Gadarene. I’ve always felt that the Lottery was a tax on people who were bad at math.

Grim Beaker

4

State governments play a shell game with lottery revenues and the streams that they fund.

For example, in Ohio, part of the sell was, as you mention, added funding for the school. Unfortunately, what really happens is that the legislature says, “OK, we’re expecting $X in lottery revenues for the school, therefore we will, in the current spending bill, reduce funding by $X, and the lottery will make up the shortfall.” They then throw the leftover tax revenue in a “Rainy Day Fund,” with which nothing ever gets done. It’s untouchable, for the most part.

Gadarene: While I don’t disagree with your basic statement, since the lotteries tend to market most heavily in poor neighborhoods, it’s entirely possible that those who play derive some utility, maybe a combination of hope and excitement, which benefits them more than the dollar spent. (“Utility” here being used in the economic sense.) Sort of like the utility the solidly middle-class might get from spinning a roulette wheel or tugging on a slot machine handle.

5

…and anyone who wants to buy a slice of hope, no matter the odds. :slight_smile:

6

Sorry, that last post was directed at Grim Beaker’s comment.

Phil, I’m not arguing that those who play the lottery might not accrue some psychological benefit from it; only that, given the regressivity, it might not be the best system in the world from which to derive major revenue streams.

I’d submit, too, that not only is the lottery marketed most heavily in lower income areas, but that by its very nature, the lottery is a device that will attract a disproportionately poor patronage–not too many stockbrokers gonna be plunking down a buck for a Pot O’ Gold ticket; not when they just far more rationally invest that money in an interest-bearing account. :slight_smile:

(I just made up the name “Pot O’ Gold” as pertaining to the lottery, but I guarantee you that a game by that name is out there somewhere.)

7

Do you have any studies that prove the poor spend more money on tickets then anyone else? And I’m not quite sure I understand how a lottery is a form of taxation. Granted it raises revenue but that doesn’t make it a tax.

Marc

8

It depends on your perspective. If you believe in personal responsibility and free choice, a lottery is a form of entertainment, like slots for the middle class or stock market speculation for the rich (last example said only slightly in jest). If you believe that the poor don’t know what’s best for them and should be watched over by Big Brother, it’s an unavoidable levy on the helpless meant to support projects for the middle class.

9

Marc, c’mon. That’s pretty common knowledge. Here’s one article, however. Here’s another. And a [third.](http://waraabe.samford.edu/Documents/Permanent/no%20lottery.htm#A Lottery is a Regressive Tax) One from the government. A great one from the Boston College Law Review (footnoted and everything!). From Alabama Law. From my alma mater, which is somewhat equivocal, yet provides us with this italicized quote: “But in virtually every case we have examined, one conclusion is constant: lower-income
individuals spend a higher percentage of their income than those in middle and upper income brackets.” Enough? All these articles call it a tax, as well–and the intent of the OP was surely to utilize the lottery in lieu of some taxes.

10

I just knew I was gonna mess one of those links up. The government link is apparently down at the moment. Sorry 'bout that.

11

**

I don't have time to read every article you posted but I did read the first one.

If the poor spend a higher percentage of their income it doesn’t mean that they’re spending more money. The article that I read did not call the lottery a tax. It said it was regressive but it did not specifically call it a tax. Obviously it is utilized in lieu of raising taxes but that still doesn’t make it a tax.

Marc

12

Anyone catch the last ‘Investigative Reports’ on A&E. It was on “Lottery Addiction”.

It seems that many people, mostly lower income, are going into debt on credit cards, stealing from employers, and using funds meant for nessecities(sp)to purchase lottery tickets. One of the points from the program was the cost to society (theft, default of loans, increased dependence on public services) was outweighing the revenue the lotteries were bringing in.

It also talked about the tax/spending shell game that pldennison mentioned, as well as interviews with lottery winners. Seems the money did not bring some of them the happiness they thought it would.

The show quoted one state government study where they sent a 16 yr old girl to 50 places to purchase lottery tickets. (You have to be 18) Only 1 store asked her for ID.

I don’t know what any of it means, but it seems interesting.

13

After months of posting with the IMHO disclaimer, we finally get to something where I actually know something. I spent 10 years building and maintaining lottery systems. Two years ago I decided to get out of the business for personal reasons, not moral ones, and am now a computer consultant.

State run lotteries are, for the most part, one of the most honestly run organizations out there. They have to be. Even the slightest appearance of impropriety destroys the confidence of the players and dooms the game(s). So what the lotteries are really all about is finding the most honest way to voluntarily separate people from their money.

People have always gambled. They always will. But state lotteries are unique in that the number of true winners is so miniscule that good argument can be made that the games are fraudulent.

Payouts typically come in two styles. Fixed payout, where the payout for a winning ticket is known prior to the wager, and pari-mutuel where the payout is a percentage of the gross.

Fixed payouts (typically three and four digit “numbers” games) are always losers. You buy a $1.00 ticket in tonight’s 3 digit game with the odds of winning being 1 in 1000 and the payout is $500.00. Two to one against. Play the game for any length of time and you’ve won exactly half of what you’ve “invested”.

But the pari-mutuels are even worse. Over one’s lifetime, the only way to beat the odds is to win the big one. Using a “typical” matrix for Lotto, buying one ticket per week over the 50 years of one’s expected adult life and the odds of hitting the Holy Grail ONCE in your lifetime is approximately 1 in 6,000. Run the odds out over 6,000 lifetimes and playing this game is even worse than playing the “numbers” games.

The difference is the house “edge”. In Las Vegas, Atlantic City, Monte Carlo, et al, it’s a few percentage points. There are enough winners to encourage people to play. In state run lotteries the edge is 50%. The house returns to the players half of what is wagered and keeps the rest. Keep in mind that in the larger jurisdictions the cost of running the entire operation is about 2% and the gross profit to the state is somewhere near 48%. State governments like large staffs so they often eat up another 8 to 12 percent in “overhead”, but significantly more than 1/3 can go to augment the state’s coffers. A damned fine return.

Most people have played the lottery. There are those that have never played. There are also a significant number that claim that they’ve never played but occasionally enjoy the fantasy anyway.

There’s also the casual player that buys a ticket a week, or buys a couple of tickets when the jackpot gets big.

But the sum of their expenditures won’t sustain a lottery. For that you need people repeatedly spending significant amounts of money. And these players are typically in the bottom half of the income chart. Some spend more than they should. But these are really quite rare.

Two sidebar thoughts:

Most state lotteries do NOT accept credit cards as payment for lottery tickets.

Georgia is the only state lottery that I’m aware of where the state’s take actually appears to go to education. Every other jurisdiction uses it simply as general revenue in a pretty dressing.
Now, are there any specific questions?

14

Fair enough, Marc, but if you’re only going to read one of the articles I linked, you should at least read one of the last three–they’re from law and public policy reviews and are actually, like, academic and stuff. Don’t just read a damn Post article, not when I’ve provided you with far more substantial sources.

15

I think states use lotteries to compensate for fiscal irresponsibility. I’m no gambling prude; I love to play poker and blackjack, and have no moral problems with casinos.

I do think, however, that state-run lotteries should go the way of the dodo bird. SouthernStyle pointed out a good reason: the return to the people is too low to be considered a fair game. A $500 return on a 1-1000 chance? Even most slot machines pay back at least $800 per $1000; some even pay back ~$970. And slots are far from your best bet in a casino.

The point by pldennison is so very true. My home state of Louisiana did the same thing. “Lottery for Education!” A bunch of BS. Louisiana has had a lottery for about 10 years now; anyone want to extol the virtues of educational excellence in Louisiana?

I also think there is an element of cruelty in dangling a multi-million dollar carrot in front of people who can hardly afford to pay rent, eat, and take care of their health. My opposition to state lotteries doens not hinge on this angle, but it is something I think about.

The truth is a lottery will always help impoverish more people than it will enrich. How our government can excuse this result in the name of getting more money to spend is beyond me. My call for the states is to scrap the lottery, make a reasonable budget, and deal with it.

16

On your last paragraph, Divemaster, I’ll disagree. Any system (tax, lottery, or otherwise) that has the poorer elements of society making considerable “contributions” to a state’s overall revenue has some merit. You can only tax those with known income – you can receive it voluntarily from anyone dumb enough to give it away.

As I recall the stories, Louisiana has one of the shadier lottery organizations in the country.

Several years ago they released an RFP looking for a new system and contract to run their lottery. There are only two “real” vendors in the country. When the RFP came out it was so blatantly slanted to the incumbent that the other company submitted a “no bid” letter weeks before the due date. The lottery was livid because this meant that there would be only one bidder – almost a sole-source situation with no reason for the bidder to bid at a competitive level. As a result the state was sure to spend millions more for the contracted service.

The second company replied that the cost of preparing a bid is somewhere between half and a full million dollars. They weren’t about to throw away that much money just to get the state of Louisiana a better deal with the incumbent.

Louisiana got to keep their vendor, and at the vendor’s preferred pricing.

17

While lotteries may be a ‘rip-off’, it’s not as bad as the raw numbers would suggest.

Any game with a high investment/payout ratio will have a bigger ‘rake’ in percentage than an even-money game. For example take a game that pays you 8-1 on your money, but has a 5% rake. Is that game worse than one that pays you even money but the house only makes 2%? Nope. The second game would require three wagers parlayed to give you the same odds, and the overall hold will be higher.

So in the case of a lottery which pays millions to one, the ‘house edge’ should certainly be much higher than your average Vegas game, but not as high as it is. The lottery would probably be ‘fair’ if the government kept perhaps 15-20% of the money.

BTW, government gambling revenues here in Alberta from Lotteries and Video Slot Machines have now surpassed the income tax revenues. So gambling is here to stay, like it or not. Government will never let go of that cash cow.

The irony is that governments used to be against gambling because of its supposed effects on society. But once government got involved, they offered games that a Mob Boss would be ashamed of, and stuck video slot machines in every bar in the province, to extract more money from the drunk patrons. The house edge in slot machines in Alberta is 8%, which about three times higher than the average in Las Vegas. We would be FAR better off if the government got out of the gambling business and let private industry take it over. Then we’d at least have competition.

18

When California was first tinkering with the idea of lottery, I was working as a legislative aide (unpaid, sadly). I believe the funds from the California lottery all are earmarked for education, and are separate from the General Fund allocation in the annual State budget.

From a policy perspective, lotteries are rotten revenue generators. Not only do they not raise much money - compare the dollars in lottery revenue against what any large government requires and you’ll see what I mean - but they’re remarkably inefficient in raising that small pittance. While the cost of collecting and disseminating most ordinary taxes is relatively low (IIRC, it’s a single digit percentage), a lottery will eat up close to 60% of revenue collected. This is largely because the payouts (winnings) are such a large percentage (50%), plus the cost of administering the program on a continuing basis. Economies of scale keep things down, but still, it takes tremendous overhead to run a lottery.

The reason governments like lotteries is that it’s a tax that people are willing to pay, so it’s an easy sell.

19

While lotteries may be a ‘rip-off’, it’s not as bad as the raw numbers would suggest.

Any game with a high investment/payout ratio will have a bigger ‘rake’ in percentage than an even-money game. For example take a game that pays you 8-1 on your money, but has a 5% rake. Is that game worse than one that pays you even money but the house only makes 2%? Nope. The second game would require three wagers parlayed to give you the same odds, and the overall hold will be higher.

So in the case of a lottery which pays millions to one, the ‘house edge’ should certainly be much higher than your average Vegas game, but not as high as it is. The lottery would probably be ‘fair’ if the government kept perhaps 15-20% of the money.

BTW, government gambling revenues here in Alberta from Lotteries and Video Slot Machines have now surpassed the income tax revenues. So gambling is here to stay, like it or not. Government will never let go of that cash cow.

The irony is that governments used to be against gambling because of its supposed effects on society. But once government got involved, they offered games that a Mob Boss would be ashamed of, and stuck video slot machines in every bar in the province, to extract more money from the drunk patrons. The house edge in slot machines in Alberta is 8%, which about three times higher than the average in Las Vegas. We would be FAR better off if the government got out of the gambling business and let private industry take it over. Then we’d at least have competition.

20

You said a bunch there, Sam.

Lotteries are, by definition, a rip-off. Over time, the only “winners” in a traditional Lotto game are those few people that win the jackpot. Everyone else loses.

But here in the U.S. of A – The Land of opportunity; Home of the brave and the free; Site of the world’s original Kazoo factory…

Sorry – got carried away.

As I started to say, due to this country’s regressive tax laws, when you win you STILL have to pay nearly 40% of the winnings BACK to the federal government as income tax. And of course if your state, county, or city governments also have an income tax that number goes UP!

Lotteries will be here long after tobacco has gone away. And THAT won’t happen in MY lifetime…