Is it true that State lotteries are a rip off? From what I understand, the prizes are only half the total take. If you take the total amount instead of twenty year payout you receive only the estimated interest on the winnings which is normally less than the total prize. Also, in New York, proceeds from the Lottery are supposed to go to education. But from what I have heard, from unofficial sources, each dollar of the Lottery winnings going to education only replaces money that would normally be coming from state aid. Can anyone confirm or deny any of the above?
Yes, lotteries are a ripoff (tax on stupidity).
The lump-sum payout is less than the periodic payout; that is no problem, just a standard present-value issue (personally, I’ll take the lump sum). It’s only an issue if it is misidentified or not made clear at the time of purchase. In some states, you have to select when you purchase the ticket how you want your winnings paid.
And sure, if it weren’t for the lottery, there’d be a lot more state money going to education. Is there the same amount going now as would have been without the lottery? Or is the total higher? Impossible to know. States routinely foist “maintenance of effort” provisions on local governments when special aid plans are put forth; they aren’t stupid enough to require it of themselves, and such provisions are of dubious value anyway.
Not quite, or maybe I’m misunderstanding you. If you take the full lump sum, I believe you get an amount that would equal the total prize if you invested it for X years at Y% interest. Maybe they calculate this the same way they calculate the discount prices for bonds.
Of course, the taxes on the lump sum may be higher than on an annual payment, which would further decrease the total value of your prize.
Basically, it’s a tax on not doing your math homework in high school. For every dollar you “invest” in lottery tickets, you get about $.45 back. For every dollar you invest in an ordinary savings account, you get $1.05 back. Even so, a lot of people think lotteries are a better way of investing their money.
–sublight.