Skip to main content

Lottery buyers line up to pay a tax

By Scott Drenkard, Special to CNN
updated 1:30 PM EDT, Fri March 30, 2012
Customers wait in line Thursday to buy their Mega Millions tickets at a liquor store in Hawthorne, California.
Customers wait in line Thursday to buy their Mega Millions tickets at a liquor store in Hawthorne, California.
STORY HIGHLIGHTS
  • The Mega Millions lottery jackpot is at an estimated $640 million
  • Scott Drenkard: People are lining up to pay what is, in effect, a tax
  • Lotteries take a disproportionate share of income from the poorest Americans, he says
  • Drenkard says lotteries pay out a lower share of revenues than other forms of gambling

Editor's note: Scott Drenkard is an economist at the Tax Foundation, a Washington-based tax research organization.

(CNN) -- Friday morning, many Americans lined up outside their local convenience stores, hoping to pick the lucky numbers that would win the record-setting $640 million jackpot offered by Mega Millions. The curious thing about this fervor is not that the odds of winning are 1 in 176 million, but rather that in effect, Americans are anxiously lining up to pay a tax, even if it is wrapped in attractive clothing.

While no government actually labels its lottery a tax, the games properly fit the definition of one. After lottery winnings are paid out and administrative costs have been covered, the leftover money is transferred into state coffers to pay for state programs. This is a tax.

State governments have developed a strong reliance on these lottery "profits" over the years. In 2010, states collected an average of $58 per capita in implicit tax revenue from their lottery programs. Delaware, which had the heaviest reliance on lottery revenue, collected a stunning $370 per capita.

Scott Drenkard
Scott Drenkard

This increasing reliance on lotteries to fund state governments is troubling, as these taxes disproportionately fall on low-income individuals.

A slew of studies in the past two decades has found that low-income people spend a greater portion of their income on lottery tickets than do high-income individuals, meaning lotteries are a regressive way to collect tax revenue.

Many have argued that while lotteries are indeed taxes, they are not so bad, because people pay them voluntarily. But people only buy government lottery tickets voluntarily because private lotteries are not allowed to operate.

State lotteries only pay out an average of 60 percent of their gross revenues, a payout vastly inferior to those of slot machines...
Scott Drenkard

State lotteries only pay out an average of 60% of their gross revenues, a payout vastly inferior to those of slot machines and table games, which offer payouts in many cases above 90%.

People only buy state-run lottery tickets because tickets with better odds are choked out of the market. So while the purchase of the ticket itself is voluntary, the portion of that ticket sale that goes to state revenues is not, much in the same way that a sales tax paid on a book is not voluntarily paid.

The curious relationship between state-run lotteries and taxes does not end there though. Even when someone wins the lottery, the winnings are subject to special withholding taxes at the state and federal levels. If someone wins the $640 million jackpot, they would be immediately subject to a 25% federal withholding and state withholding rates as high as 12%. Their total income tax burden on the winnings might be more depending on how they invest that income and what credits and deductions they take next April.

Follow us on Twitter @CNNOpinion.

Join us on Facebook/CNNOpinion.

The opinions expressed in this commentary are solely those of Scott Drenkard.

ADVERTISEMENT
Part of complete coverage on
updated 12:53 PM EDT, Tue September 30, 2014
Jeff Yang calls Ello a wakeup call to Facebook and Twitter, and a sign of hope for fast-rising upstarts Pinterest and Snapchat.
updated 6:48 PM EDT, Tue September 30, 2014
Paul Waldman says the Secret Service should examine its procedures to make sure there are no threats to the White House--but without losing the openness so valuable to democracy
updated 4:49 PM EDT, Tue September 30, 2014
Jesse Williams says the videotape and 911 call that resulted in police gunning down John Crawford at a Walmart reveals the fatal injustice of racial assumptions
updated 7:03 PM EDT, Tue September 30, 2014
Mel Robbins says officials should drop the P.C. pose: The beheading in Oklahoma was not workplace violence. Plenty of evidence shows Alton Nolen was an admirer of ISIS.
updated 3:11 PM EDT, Tue September 30, 2014
The Occupy Central movement has already achieved much by bringing greater attention to Hong Kong's struggle for democracy, William Piekos says..
updated 3:11 PM EDT, Tue September 30, 2014
The Occupy Central movement has already achieved much by bringing greater attention to Hong Kong's struggle for democracy, writes William Piekos.
updated 10:13 AM EDT, Tue September 30, 2014
As Prime Minister Narendra Modi visits America, Madeleine Albright says a world roiled by conflict needs these two great democracies to commit to moving their partnership forward
updated 10:04 AM EDT, Tue September 30, 2014
John Sutter: Lake Providence, Louisiana, is the parish seat of the "most unequal place in America." And until somewhat recently, the poor side of town was invisible on Google Street View.
updated 9:11 AM EDT, Mon September 29, 2014
Julian Zelizer says in the run up to the 2016 election the party faces divisions on its approach to the U.S.'s place in the world
updated 10:19 AM EDT, Mon September 29, 2014
Ruben Navarrette says Common Core supporters can't devise a new set of standards and then fail to effectively sell it.
updated 9:29 AM EDT, Tue September 30, 2014
Earlier this month, Kenyans commemorated the heinous attack on the Westgate Mall in Nairobi.
updated 2:59 PM EDT, Tue September 30, 2014
David Wheeler says Colorado students are right to protest curriculum changes that downplays civil disobedience.
updated 9:58 PM EDT, Fri September 26, 2014
Sally Kohn says when people click on hacked celebrity photos or ISIS videos, they are encouraging the bad guys.
updated 7:55 AM EDT, Fri September 26, 2014
Loren Bunche says she walked by a homeless man every day and felt bad about it -- until one day she paused to get to know him
updated 9:32 AM EDT, Tue September 30, 2014
ISIS grabs headlines on social media, but hateful speech is no match for moderate voices, says Nadia Oweidat.
updated 8:33 AM EDT, Mon September 29, 2014
A new report counts jihadists fighting globally. The verdict? The threat isn't that big, says Peter Bergen.
updated 5:37 PM EDT, Tue September 23, 2014
Ebola could become the biggest humanitarian disaster in a generation, writes former British Prime Minister Tony Blair
updated 12:58 PM EDT, Fri September 26, 2014
ISIS has shocked the world. But will releasing videos of executions backfire? Four experts give their take.
updated 10:39 AM EDT, Fri September 26, 2014
Eric Holder kicked off his stormy tenure as attorney general with a challenge to the public that set tone for six turbulent years as top law-enforcement officer.
updated 9:09 AM EDT, Fri September 26, 2014
LZ Granderson says Obama was elected as a war-ending change agent, not a leader who would leave behind for his successor new engagement in Iraq and Syria. Is he as disappointed as the rest of us?
updated 5:10 AM EDT, Wed September 24, 2014
Gayle Lemmon says the question now is how to translate all the high-profile feminizing into real gains for women
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT