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Is the Lottery a Hidden Tax?

The lottery offers the chance to fantasize about riches at a cost of just a few bucks. For some people, it’s fun to play, but for others – especially those with low incomes – it can be a big budget drain. That’s why critics call it a hidden tax on those least able to afford it.

Lottery games take many forms, but they all involve a random drawing of numbers to determine the winner. The more of your numbers match the numbers drawn, the bigger the prize. And while the odds of winning are long, there are ways to increase your chances of success. For example, Harvard statistics professor Mark Glickman recommends picking numbers that are not in a cluster or that end in the same digits (like children’s birthdays). This decreases competition and increases your chances of winning.

There’s a certain inextricable human urge to gamble, and lottery jackpots are designed to tap into that impulse. But there’s a lot more going on in state lotteries than just dangling the promise of instant riches in front of the masses. Lottery commissions know that a major portion of their player base is lower-income, less educated, nonwhite, and male. So they push two messages mainly: that playing the lottery is fun, and that the winnings are used to benefit the public.

A key reason for the popularity of the lottery is that it allows state governments to raise money without significantly increasing taxes or cutting public programs. In fact, many state governments rely on the revenue from lotteries to finance an array of services and infrastructure. But this arrangement has some serious limitations and is not sustainable in the long term, even if it’s successful in generating high revenues for a few years.

The popularity of lotteries is also rooted in an anti-tax ethos that’s pervasive in American politics. In the immediate post-World War II period, when lotteries started to gain traction, many states used their profits to expand social safety net services and avoid increasing taxes on middle- and working-class citizens. But in the era of state fiscal crises, that rationale no longer holds up.

Lotteries have developed powerful constituencies that can be a major hurdle for anyone who wants to abolish them, including convenience store owners (who profit from lotteries by selling tickets); lottery suppliers (hefty contributions by these vendors to state political campaigns are frequently reported); teachers (in states in which a significant portion of proceeds are earmarked for education); and state legislators (who quickly get accustomed to the extra cash). Despite all of this resistance, there’s still no sign of a national lottery — or an attempt to abolish state lotteries. The reasons for this are complex, but one is surely that it’s a hard sell in the age of austerity. And it will only get more difficult if the economy worsens. Then there’s a very real risk that some state governments will lose the ability to manage their lotteries properly and will start using them as a substitute for taxes.