Taxation and the Lottery

Gambling Jun 15, 2023


In the United States, state governments operate a variety of lotteries. These can take the form of instant-win scratch-off tickets, daily games that require players to select three or four numbers, or multi-state lotteries like Powerball. Although the lottery is not taxed, it does raise money for state government services. As a result, it has become an important source of revenue for many states. But how does the lottery fit into the broader taxation and government spending debate? This article explores the history of the lottery, its impact on society and how it may be regulated in the future.

The concept of a lottery is rooted in ancient times. The Bible describes Moses giving property to the tribes of Israel by drawing lots, and Roman emperors used lotteries as entertainment at lavish dinner parties. In the 17th century, the Continental Congress established a public lottery to try to raise funds for the American Revolution. Later, private lotteries became popular in England and the United States, allowing people to sell goods or land for more money than they would be worth in a normal sale. These private lotteries helped to build several American colleges, including Harvard, Dartmouth, Yale and William and Mary. They also financed the Revolutionary War and other colonial military campaigns.

State lotteries, on the other hand, have long enjoyed broad public support. A primary argument that has been used to promote these activities is that they provide a source of “painless” revenue—that is, they raise money from players voluntarily, without imposing any burdens on other citizens. This argument is particularly powerful in times of economic distress, when the promise of free cash can help to offset fears of taxes and other revenue cuts.

Despite their widespread popularity, however, there are a number of problems with state-run lotteries. First, there is the issue of how lotteries are marketed and promoted. As a business enterprise, state lotteries are designed to maximize revenues. This necessarily involves aggressive marketing and promotion, which have led to the creation of special interest groups that benefit from state lottery revenues. These include convenience store operators (the primary vendors for the games); suppliers of lotteries’ products; teachers (in those states that earmark lottery proceeds for education); and state legislators (who often come to rely on the revenue).

Lottery promotion relies on two main messages. One is that playing the lottery is fun—that is, the experience of scratching a ticket and seeing the winning numbers is enjoyable. The other is that playing the lottery is a civic duty, and that even if you lose, you should feel good about the fact that you contributed to state revenue. Both of these messages are problematic. They obscure the regressivity of lotteries, and they fail to address the potential negative social consequences for poor people and problem gamblers. In addition, they run at cross-purposes with the state’s overall fiscal interests. For these reasons, there is a pressing need to reform the way that state lotteries are promoted and regulated.