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State Lotteries: Predatory Dishonesty, by the Numbers

The Powerball payout has reached the jaw-dropping, mind-numbing (insert your favorite hyper-adjective here) level of $1.4 billion. Tragically, state lotteries are one of the most sinister and unfair ideas our elected officials have ever had. And simple, straightforward numerical thinking would have clarified everything. Let us count the reasons I feel this way:

1. It’s a TAX.  Today’s lotteries were largely created to fund education. That funding comes from states taking in much more than they pay out in prizes. Some quick research suggests that about two-thirds of the amount wagered is paid out in prizes, with about 5% for “administration” and 30% to state coffers. By comparison, most casinos pay out much more – about 95% to 98%, depending on the game. In my book, the difference between the 35% or so that the states keep and spend and the 2%-5% the casinos do is a tax – yet it was never pitched that way.

2. It’s a REGRESSIVE tax. More quick research shows clearly that lower-income people spend a greater share of their income on lotteries than the more affluent. (They may even spend more in absolute dollars, let alone a percentage of income.) In my book, that makes it not just a tax, but a regressive tax – and it was certainly never portrayed that way.

An aside: I find it shameful that most progressives, the group most vocal about increasingly uneven income distribution, are silent about this most regressive of taxes. Never mind the “no new tax whatsoever” Tea Party dévotées. Millions of people on each side happily pay this totally voluntary tax.

Another aside: I note that some states have bulletin boards in poor neighborhoods advertising the lottery by saying, “This could be your ticket out.” That’s not just shameful, it’s predatory.

3. “Your schools win, too.” This may be the most disingenuous assertion of all. There’s virtually nothing to prevent state legislatures from offsetting the lottery windfall by reallocating general funds away from education – after all, all dollars are green. Not surprisingly, the empirical evidence (click here & here, for example) suggests that in the long run lotteries don’t contribute beans to state education.

So as you plunk down your Powerball money, remember that you’re participating in a real-life Hunger Games, on steroids. And believe you me: if I win the jackpot, I’m not telling anyone.

“Painting with Numbers” is my effort to get people to focus on making numbers understandable.  I welcome your feedback and your favorite examples.  Follow me on twitter at @RandallBolten. And see more about my writing and “Painting with Numbers” at www.painting-with-numbers.com.

Comments

Anonymous
(Manager) |

Hi Randall,

Good blog post. A couple of points:

- It's not a tax because you can choose not to pay it without consequences.

- Don't poor people spend a greater share of their income on everything they spend money on? i.e., poor people spend a greater share of their income on milk than those with higher incomes. Once the denominator of income becomes smaller, every numerator of spend makes for a greater percentage than for groups with larger denominators/incomes.

- The billboards in poor neighborhoods are part of a larger marketing/communications issue. What would people say if the state sponsored a marketing campaign (tv, radio, print, online, etc) to advance the idea that gambling is the way to get ahead? It would be like the anti-smoking campaign, but in favor of the vice. Remove the public schools benefit canard, and you're left with just a massive public education campaign to promote gambling. In that way it is typical of big government solutions... never mind what the program actually does, just focus on how it makes you feel to support it. It feels good to be pro-school funding.

Thanks!

Randall Bolten
Title: CEO
Company: Lucidity
LinkedIn Profile
(CEO, Lucidity) |

Thanks, Anonymous, for your thoughtful comments. Let me address all three:

A. IS IT A TAX? I take your point, and even discussions about numbers often depend on the meanings of words. However, while you can CHOOSE not to buy a lottery ticket, you cannot choose to pay LESS for the lottery ticket on the grounds that you don’t want the “markup” (i.e., the amount extracted by the states in excess of what casinos pay out, which I am asserting is a tax). In this sense, it is like many other choices we face. For example, you can choose not to buy a house, but if you do buy a house you have to pay property taxes; and you can choose not to buy that sweater, but if you do buy it, you’ll also have to pay the sales tax (at least in most states).

B. HOW MUCH MONEY POOR PEOPLE HAVE TO SPEND. Again, I take your point – everything the poor pay for represents a higher percentage of their income than those expenditures represent for more affluent people. But with respect to our governments’ (i.e., federal/state/local) tax policies, it is our presumption that when they are behaving fairly, they are extracting at worst an equal share of everyone’s income, and preferably a higher percentage share of income of the more affluent – this is called a “progressive” tax system. In the case of lotteries, regardless of the intention, the effect – and a predictable effect at that – is not just regressive, but extremely regressive.

C. BILLBOARD MORALITY. You give a nice analysis, and yes, governments are reduced to trying to make people feel good that they are supporting education. But even that pitch is deeply dishonest – the existence of lotteries has not increased the amount of funding that education gets.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

The only positive point that the news media makes about any lottery (more when the winning pot is unusally large) is the astronmical odds against winning.

So, if you plunk down your $2, maybe you buy that candy bar, but those who plunk down hundreds with no real appreciable change in the odds are by far the real losers,unless they actually win, then as Roseanne Roseannadanna was fond of saying "Never mind".

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

As Randall said, he will never tell anyone if he wins it.

ArLyne Diamond
Title: Owner - President
Company: Diamond Associates
LinkedIn Profile
(Owner - President, Diamond Associates) |

all true - but no one is forcing us to play. Frankly, I too am caught up in the possibility of winning billions of dollars and bought 3 tickets!

Randall Bolten
Title: CEO
Company: Lucidity
LinkedIn Profile
(CEO, Lucidity) |

Good point, ArLyne, and one we all have to acknowledge. 3 winners just reported, one in CA -- was that you???? C'mon, 'fess up!

But remember that most of the visitors to this site are professionals who can spare a couple of bucks and have some fun when the jackpot reaches ten digits. That's a far cry from our elected officials encouraging people who can't spare it to spend $5-$10 per week so the states get more money, which WON'T increase the amounts spent on education.

David Smith
Title: Manager
Company: Private
(Manager, Private) |

Randall, what do you really expect from government? If there's a way to tax more or charge more in fees/penalties/fines or, in the case of the lottery, take over the previously illegal numbers racket, they will do it.

I'm surprised we don't have government-run opium dens. When we eventually do, I am sure we will still hear, "but the revenue is for schools!"

Anonymous
(CFO) |

Damn prohibition and them alcohol taxes.

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Folks, remember, you get the government you vote for.

If you don't vote, or if enough other people who may vote like you don't bother to vote, your candidate doesn't get in.

David Smith
Title: Manager
Company: Private
(Manager, Private) |

Funny... I always hear impassioned pleas for more people to vote more often, but I virtually never hear anything about becoming better acquainted with the issues.

It's as if an ignorant vote is such a noble thing. Why, if you released a spider monkey in a polling booth and he happened to dislodge a chad, that would be as valued as someone who studied the issues and then voted. Give him his "I Voted" sticker.

Personally, I'd rather see voters 25% better informed than 25% more voters. And that, to bring it full circle, is the value of interesting discussions like this.

Randall Bolten
Title: CEO
Company: Lucidity
LinkedIn Profile
(CEO, Lucidity) |

Excellent conversation, all! I’m frankly not quite sure why this is sticking in my craw so much. After all, I’m a resident of Nevada, where gambling and (in some counties) prostitution are legal, and I’m not bothered by that.

What troubles me about this issue is the dishonesty of it all and the fact that it’s obviously preying on the poor and hopeless. I’m no Pollyanna about our elected officials, but this one is a new low. (Not that lotteries are a new thing at this point, but it's in the news right now.)

I also focus on this issue because as you may know, I write a lot about how numerical information is presented, and this is a great example of an issue that would be better understood if the numbers were presented more clearly.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

Randall,

The lottery on it's own is fine. It is what state legislators do with the allocation that is the problem. I look at it this way...as dismal as it is, without the lottery, imagine what the education budget will be.

Randall Bolten
Title: CEO
Company: Lucidity
LinkedIn Profile
(CEO, Lucidity) |

From what I’ve read, most education budgets would be pretty much the same without the lottery. States spend what they were going to spend on education. It’s almost impossible to prevent state legislatures from offsetting lottery income by reductions in general fund allocations to education, even while they’re CLAIMING that the lottery funds go to education. If this were not the case, I would feel better about the whole thing.

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