Lottery Taxes and Public Services

Lottery is the most popular form of gambling in the world. People spend $100 billion on tickets every year. States promote lottery games as a way to raise revenue. But does this promotion of gambling hurt the poor, foster problem gambling, or simply misallocate resources? And is it an appropriate function for state governments?

When a lottery jackpot hits, players can choose to receive the prize in a lump sum or as an installment. A lump sum option is a single payment of the headline jackpot amount, typically at a discount from the actual number. The discount is set by the lottery and reflects current interest rates. The payout is taxable as income, so players should consider the tax implications of their choice before they decide.

A central argument in favor of lotteries is that they are a form of “painless” revenue: People pay to play, and the proceeds support government spending. But a popular moral argument against them is that they are a form of regressive taxation, which hurts different taxpayers at different rates. Lotteries, critics argue, prey on the illusory hopes of the poor and working classes, while also siphoning money away from legitimate business and consumer taxes.

There is some truth to this. Studies show that lottery players are disproportionately from lower-income neighborhoods, and there is a clear correlation between lottery participation and education levels. But these facts should not detract from the larger question of whether the lottery is a fair trade-off between taxes and public services.