Who Won Powerball? Not the Poor!

Lotteries are a lousy way for states to raise money.

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Three lucky Americans last night struck the jackpot in the latest Powerball game, winning the opportunity to divvy up $448 million, the third-largest haul in the game's history. This $448 million payout comes just a few months after Powerball's record-setting $590 million pot was claimed.

While it is, of course, fun to speculate about the various things that could be done after winning such a huge sum of money, it's worth pausing for a minute to mull over whether lotteries actually serve any good. Ostensibly, the purpose of the lottery is to raise money for state budgets; 43 states, plus the District of Columbia and the U.S. Virgin Islands, share a portion of the Powerball pot.

[See a collection of political cartoons on the economy.]

But are states with lotteries actually any better off than their non-lottery neighbors? There's serious reason to doubt that they are. The Nelson Rockefeller Institute on Government has found that lotteries – along with other forms of legalized gambling – "may add to, rather than ease, long-term budget imbalances." Citizens for Tax Justice laid out even more problems:

For one thing, if consumers spend disposable income on lotto tickets, they are forgoing other purchases – purchases that would be subject to a sales tax.  So in the end, lotto may prove to be a revenue wash.

For another thing, it becomes a case of diminishing returns as neighboring states introduce new and better lotto games. Then, states either lose business to another state or hit a ceiling for how many lotto tickets a population can buy. That is, as a revenue source, it's a short or medium term quick fix but not a long term solution. Kind of like winning the lottery.

And did we mention that gambling is addictive, winning is unlikely and it's not at all in the public's interest for a government to actively encourage and promote it?

One of the most prevalent uses for lottery revenue is education, which in theory sounds like a good idea: Raising money for classrooms a dollar or two at a time! But many states have actually decreased their education spending after implementing a lottery, using the lottery's existence to justify redirecting public dollars elsewhere. One study called dedicating revenue from the lottery to a particular use "a shell game."

[See a collection of political cartoons on the budget and deficit.]

Then there's the effect of the lottery on the poorest Americans. Study after study has shown that lottery tickets are disproportionately purchased by low-income, less-educated people, and that lottery purchases go up when the economy and the unemployment rate gets worse. (22 state lotteries set sales records during the height of the Great Recession.) The implicit tax rate on lottery tickets, as Reuters' David Cay Johnston has noted, is 38 percent, a rate usually reserved for the very richest Americans.

A 2008 Carnegie Mellon study found that "lotteries set off a vicious cycle that not only exploits low-income individuals' desires to escape poverty but also directly prevents them from improving upon their financial situations." As the study's lead author said: "The hope of getting out of poverty encourages people to continue to buy tickets, even though their chances of stumbling upon a life-changing windfall are nearly impossibly slim and buying lottery tickets in fact exacerbates the very poverty that purchasers are hoping to escape." (For what it's worth, the odds of winning the latest Powerball drawing were about one in 175 million.) A Duke University study found that the poorest third of households purchase more than half of the lottery tickets sold during a given week.

So let's acknowledge the lottery for what it is: a tax on those who can least afford it that is levied by preying on the very fact that they can't afford to buy the things they need. Sure, buying lottery tickets can be fun in the short term, but in the long run, lotteries are a truly cynical way for states to raise money.

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