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Are lotteries a tax on the poor? Tax Foundation says: “Yes”

March 8, 2012
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There’s no better advertising for the lottery than the reveal this week of 81-year-old Louise White of Newport as the winner of a $336 million Powerball jackpot. Her story has received national attention and the ProJo blew it up on its front page for two days running. Who knows how many people will buy lottery tickets and think of White’s lucky payday in hopes of striking it big,

I got called a “Debbie Downer” on Twitter earlier this week for asserting that most lottery spending comes from lower-income communities. And Lottery Director Gerald Aubin told Tim White that lotteries don’t take a disproportionate toll on the poor:

“There is always the misnomer that lower-income neighbors are predominantly playing. That is not the case,” Aubin said. “We have strong sales in middle-class and upper-class neighborhoods.”

In 1993, I crunched per-capita lottery spending in Central Massachusetts for a story in the Worcester Telegram & Gazette. The results showed average spending of hundreds of dollars in cities, and about $30 or so in well-heeled bedroom communities. Some of that can be explained by where people work, but the findings didn’t deter critics:

“There’s a close correlation between low-income levels and high participation in the lottery,” said state Sen. Thomas Birmingham, D-Chelsea, chairman of the Senate Ways and Means Committee. “Money is largely being funneled out of poor communities and then being distributed in very regressive ways.”

Eric M. Turner, executive director of the [Massachusetts] Lottery Commission, acknowledged the lottery is played more by low- and moderate-income residents than by the wealthy. But he said playing the lottery is a voluntary and popular diversion.

Since the lottery-as-poor-tax refrain is a common gripe for liberals, I sought a conservative view on the subject.

One of the first things to come up in a Google search was a comprehensive paper by the Tax Foundation, whose depictions of Rhode Island’s tax climate are often favored by conservatives.

The Foundation’s findings include the following:

– Lotteries amount to a hidden tax, favored by state officials as a form of revenue:

Is this $14 billion [combined play across states for fiscal 2003] really tax revenue? No government—state or federal—labels it as such. However, despite the lack of a formal definition as a tax by a government agency, lottery “profits” constitute an implicit tax. When state governments removed lottery prohibitions from their constitutions, they did so only for themselves. Seeing lotteries as a potential goldmine for state coffers, they maintained the ban on private lotteries and created for themselves a monopoly and, in effect, a source of tax revenue.

– Lotteries are disproportionately played by poor people:

[Lottery supporters] cite studies showing that the poor spend less money on lotteries than the middle class and wealthy do, but this also is not a true measure of regressivity since it does not take into account money spent as a percentage of income. They claim that regressivity is an issue only with regard to taxes, not with voluntary activities like lotteries,26 and they are content to rely on meaningless statistics that show, the poor play the lottery less often than the middle or upper class in certain states, or that the majority of a state’s lottery consumers are middle-income. What good are these figures if we don’t know how much people spend—and how much they earn? $500 worth of lottery tickets in one year may be a drop in the bucket to an upper-income person, but it is a significant portion of a poor person’s income.

Extensive evidence shows that lotteries are regressive.27 The National Gambling Impact Study Commission determined that, during the time period studied, not only were lotteries regressive, but the poor spent more as a dollar amount.28 Other studies show that the poor do not spend more as a dollar amount, but they do spend more as a percentage of income. The level of regressivity seems to vary depending on the type of game and location, but there is a consensus among most researchers that state lotteries are indeed regressive.

The bottom line; while everyone can harbor dreams of being the next Louise White, we all may have a better chance of getting struck by lightning.

[Photo: Legal Schnauzer]

8 Comments leave one →
  1. Mike permalink
    March 9, 2012 2:30 pm

    Or perhaps more precisely: Lotteries are a tax on people who are bad at math.

    • March 30, 2012 2:21 pm

      That was a true and hilarious statement. However the odds are currently 1 in 176 million. Since the Jackpot is 540 million everyone that buys a ticket has the odds in their favor.

  2. ninjanurse permalink
    December 2, 2012 2:31 am

    I have fantasies of how I’ll spend my lottery win, and since my chances of winning are about the same whether I buy a ticket or not, I never bother to buy a ticket.

Trackbacks

  1. Second Powerball win brings total RI budget windfall to $17.3M | WPRI.com Blogs
  2. Rhode Island called tops in the nation on per-capita lottery spending « On Politics
  3. Rhode Island called tops in the nation on per-capita lottery spending « On Politics
  4. In down economy, RI’s net gambling revenue grows by almost 23M over last year « On Politics
  5. Most RI Powerball winners got $4 each — was it worth it? « On Politics

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