Every year, Americans spend a mind-blowing $70.1 billion on the lottery. That works out to an average of $630 per household, representing more money spent on gambling than on books, sports tickets, recorded music sales, video games, and the movie box office – all combined!
This is according to data visualization expert Max Galka, who published a series of posts and visualizations on the economics of the lottery in his Metrocosm blog. The numbers he provides are both astounding and alarming, ultimately making a convincing case that the lottery is a regressive and inefficient tax on some of the nation’s poorest people.
Let’s start with the economics. Here’s the math on the New York Lottery, which is a starting point to understanding the inefficiency behind lottos in the first place:
To sum up the math:
- 51% of each dollar goes to tax revenue: federal, state, and municipal.
- 18% goes to covering expenses, such as advertising or retailer commissions. This is the part that makes the process inefficient.
- 31% of each dollar actually goes to the prize money, and that basically sums up the terrible odds behind winning in the first place.
In other words, for every $3 spent on the New York Lottery, less than $1 is paid out to winners, while the other $2 is going to expenses and tax revenues.
The House Advantage
As Max notes in one of his posts, the lottery itself is not a tax – but the artificially inflated price of lottery tickets ultimately ends up as an indirect excise tax:
Choosing to play the lottery is voluntary. But much like sales taxes, the inflated price of lottery tickets is not.
It is illegal for anyone but the state to run a lottery. So unlike casinos, which face competition from other casinos, lotteries operate as a monopoly, so they can set their pricing artificially high, or equivalently, their payout rates artificially low.
While it is true that many people stay away from lottery tickets because the odds are not in their favor, there are groups of people that are far less fortunate. They and their families bear the brunt of inefficient lotto economics, as well as the house advantage.
Who’s Buying Lottery Tickets?
Lottery sales follow the 80/20 rule. It turns out that 82% of all sales come from 20% of the players.
Many of these players are compulsive gamblers, and many also come from lower income brackets.
In this post, which includes some key assumptions, Max shows that the “lottery tax” is a significant burden for many low-income households even in contrast with other taxes:
The lottery is voluntary, you don’t participate in it unless you decide to.
I wish taxes were that way, but they aren’t unless you choose the life of a street bum (and even they pay taxes when they spend the money they beg).
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Yes, it’s tax on the poor and stupid, but it’s a VOLUNTARY tax.
My only issue with the lottery is that it makes gambling addicts out of our politicians. It never fails- open up a new source of revenue, be it lotto ticket sales, taxes on marijuana, whatever, and local & state politicians will spend years beyond the projected new revenues.
We need to put all our state and local governments on cash diets and make them start living within the limits of their present, proven means.
I agree that it’s voluntary, I get that, but what I don’t like about it is how the government will run a gambling scheme like the lotto while also arresting people and stealing their fucking houses from them for running ‘illegal gaming establishments’ by hosting poker games with friends. Don’t believe me, check out William grigg on LRC.
I have never felt dumber than when I bought a powerball ticket before those huge drawings a few months back. I was embarrassed to ask for one, but I did it anyway. Id have felt smarter using the dollars to light my grill.
“What, lotto tickets? No, not me, I wasn’t asking for a lotto ticket, I was asking if they had any gay porn back there, I swear”
Demonstrates how well Everyday Math is working!
100% Voluntary………don’t feel sorry for them.
Lottery: A tax on people who are bad at math. — Emo Philips