O'Brien writes: "What if I told you there was a $70 billion tax that the poor pay the most. You'd probably say that isn't very fair. But that's exactly what the lottery is: an almost 12-figure tax on the desperation of the least fortunate."

 

 

Powerball sign. (photo: Ross Catrow/Flickr)

The Lottery Could Be the Most Regressive Form of Taxation in the US

By Matt O'Brien, The Washington Post

14 May 15

hat if I told you there was a $70 billion tax that the poor pay the most. You'd probably say that isn't very fair. But that's exactly what the lottery is: an almost 12-figure tax on the desperation of the least fortunate. 

To put that in perspective, that's $300 worth of lottery tickets for every adult every year. But it's actually worse than that, because, as The Atlantic's Derek Thompson points out, researchers have found that the bottom third of households buy more than half of all tickets. So that means households making less than $28,000 a year are dishing out $600 a year on lotteries. And, as a result, everybody else doesn't have to pay the higher taxes they would if gaming revenues weren't underwriting our schools.

 

So what? Lotteries might be just like a tax for all but the one-in-a-hundred-million who win them, but they're still a voluntary tax. It's not the government's fault that people either don't care or don't realize that, once you account for taxes and the possibility of splitting the pot, it never makes financial sense to buy a lottery ticket. Right? Well, no. It's not that poor people don't understand that the lottery has a near-zero chance of making them dynastically wealthy. It's that they think everything else has an actually-zero chance. That's why, as Thompson highlights, people making less than $30,000 are 25 percent more likely to say that they buy lottery tickets for money than for fun, while it's the opposite for everyone else. State lotteries, in other words, don't just prey on poor people's dreams—they do that for everyone—but rather on desperate dreams.

 

That adds up. And not just in the "if you put $600 in the stock market every year, do you know how much you'd have in 40 years" sense. It might not sound like a lot, but an extra $600 can be the difference between being able to deal with an unexpected emergency—an injury, illness, or car breaking down—and being forced to borrow money on terms that are the reason the word "usurious" exists. Indeed, payday lenders specialize in turning a couple-hundred dollar loan into a never-ending cycle of fees. It's their raison d'être.

 

But the worst part about lotteries is that they continue even though we know what we should do with them: abolish them and replace them with prize-linked savings. What's that? Well, it's an idea so good that it seemed destined to only exist at think tank conferences. It's a system where instead of each person earning interest on their savings, all the interest is pooled together and then raffled off. So in the worst case, people have saved money that they otherwise would have lost on lottery tickets, and in the best they won a nice little cash prize on top of their little nest egg. Or, as the Bipartisan Policy Center puts it, prize-linked savings are "a lottery with no losers." Now, up until last year, banks hadn't been allowed to do this in all but a handful of states, but, in a stunning act of competency, Congress got rid of all the federal hurdles in the way. The problem, though, is it's hard to get someone to understand something when their low property taxes depend on them not understanding it. In other words, it isn't always easy to get state governments that depend on lottery revenues to allow something to compete with that.

 

And so we keep taxing the dreams of people who don't have much more than that.

 

 

 

 

 

 

 

 

 

And so we keep taxing the dreams of people who don't have much more than that.