Lottery Taxes Revealed

The lottery is a form of gambling in which tickets are sold for a chance to win a prize, typically a cash sum. Historically, lotteries have been used to raise funds for public and private projects. Modern examples include military conscription and commercial promotions in which property is given away through a random procedure, as well as the selection of juries from lists of registered voters. In the strictest sense, however, only the payment of a consideration—whether money or goods—in exchange for a chance to win the lottery constitutes true gambling.

For the many people who play, the idea is that there’s a chance they could become rich overnight. But the odds are stacked against them. And, as many people find out to their cost, that slim hope can turn into a nightmare.

It’s no secret that winning the lottery is a long shot, but how much do you really need to spend on tickets to stand a chance of hitting it big? And is it even possible to win the largest jackpot in history? We spoke to a few experts about how people decide how much they’re willing to risk on a ticket, and whether it’s a good investment.

A lot of the conversation about lottery tends to focus on its regressiveness, how it’s a way for poorer citizens to pay for things they can’t otherwise afford and then get ripped off in the end. But what’s less talked about is the fact that state lotteries are actually a form of taxation.

As they’ve shifted away from their initial message of “oh the lottery is so wacky and weird,” lottery commissions have come to rely on two messages primarily: that playing the lottery is fun and that you’re smarter than them because you don’t do it. The latter is important, because it obscures how much people really do spend on the games and the irrational gambles they engage in when they do it.

In the early days of lotteries, states promoted them as a way to expand their social safety nets without imposing particularly onerous taxes on middle class and working-class taxpayers. But this arrangement was never sustainable and, in the years since, we’ve seen the regressive nature of lottery taxes revealed for all to see.

People spend upward of $100 billion on lottery tickets in a year, and while we don’t have a comprehensive picture of how it’s impacting broader state budgets, there’s no denying that it’s a huge source of revenue for governments at all levels. But how meaningful is that revenue, and is it worth the cost of so many people’s dreams? In this episode of the podcast, we examine that question and more.