The Regressive Nature of Lottery Revenue

The lottery is a popular form of gambling in which a number or symbols are drawn at random and prizes are awarded to those who have correctly guessed the winning numbers. It has been around for a long time, with some of its origins dating back to the ancient Chinese Han dynasty (205–187 BC). It was used by the Roman Emperor Augustus to distribute property and slaves during Saturnalian feasts, and it later served as a way for many states to raise funds for projects such as repairing bridges and building the British Museum and Faneuil Hall in the United States. In modern times, the lottery is often portrayed as a harmless way for people to spend money and entertain themselves.

In state after state, the major argument for lottery adoption has focused on its value as a source of “painless” revenue: taxpayers are voluntarily spending their own money for public benefit without reducing other taxes, or raising other fees that may hit lower-income citizens hard. This argument seems especially persuasive when a state is facing economic distress, when voters may be reluctant to increase general taxes. But it is also true that, once a lottery is established, it tends to become a permanent feature of a state’s financial picture, even when the economy is strong.

Moreover, as a source of state revenue, lottery proceeds are not transparent to consumers in the way that a regular tax is. Unlike with most taxes, which are explicitly reflected in the price of goods and services, lottery revenues are not visible to consumers as they purchase tickets, and so it is not always clear that they are paying a hidden tax. As a result, the percentage of state budgets that come from lottery profits has grown significantly over time.

Lottery officials try to counter the regressive nature of their games by stressing that lottery proceeds are used for specific public benefits, such as education. Unfortunately, this message is a little misleading. In fact, the vast majority of lottery revenues come from middle- and upper-income neighborhoods. Only a small percentage is from low-income communities. And the amount of state lottery proceeds that go toward educational purposes is a small fraction of the overall total.

The real reason for the regressive nature of lottery revenue is that, in addition to the regressivity of the prize structure, there are other costs associated with the operation of a state lottery. This includes the cost of advertising, which can be very expensive and frequently involves misrepresentations of odds or the actual value of the prizes to be won. Some critics argue that these kinds of misleading practices are the hallmark of lottery marketing and should be outlawed. Others are concerned that the existence of a state lottery undermines the moral integrity of other forms of gambling.

Posted in: Gambling