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 8:37 AM EDT, Tue October 28, 2014
Errol Louis says forced to choose between narrow political advantage and the public good, the governors showed they are willing to take the easy way out over Ebola.
updated 2:03 PM EDT, Mon October 27, 2014
Eric Liu says with our family and friends and neighbors, each one of us must decide what kind of civilization we expect in the United States. It's our responsibility to set tone and standards, with our laws and norms
updated 7:45 AM EDT, Mon October 27, 2014
Sally Kohn says the UNC report highlights how some colleges exploit student athletes while offering little in return
updated 3:04 PM EDT, Sun October 26, 2014
Terrorists don't represent Islam, but Muslims must step up efforts to counter some of the bigotry within the world of Islam, says Fareed Zakaria
updated 9:02 AM EDT, Fri October 24, 2014
Scott Yates says extending Daylight Saving Time could save energy, reduce heart attacks and get you more sleep
updated 8:32 PM EDT, Sun October 26, 2014
Reza Aslan says the interplay between beliefs and actions is a lot more complicated than critics of Islam portray
updated 7:19 AM EDT, Mon October 27, 2014
Julian Zelizer says control of the Senate will be decided by a few close contests
updated 8:12 AM EDT, Fri October 24, 2014
The response of some U.S. institutions that should know better to Ebola has been anything but inspiring, writes Idris Ayodeji Bello.
updated 5:01 PM EDT, Wed October 22, 2014
Paul Callan says the grand jury is the right process to use to decide if charges should be brought against the police officer
updated 12:19 PM EDT, Thu October 23, 2014
Theresa Brown says the Ebola crisis brought nurses into the national conversation on health care. They need to stay there.
updated 6:35 PM EDT, Tue October 21, 2014
Patrick Hornbeck says don't buy the hype: The arguments the Vatican used in its interim report would have virtually guaranteed that same-sex couples remained second class citizens
updated 12:30 PM EDT, Fri October 24, 2014
The Swedes will find sitting on the fence to be increasingly uncomfortable with Putin as next door neighbor, writes Gary Schmitt
updated 12:32 PM EDT, Fri October 24, 2014
The Ottawa shooting pre-empted Malala's appearances in Canada, but her message to young people needs to be spread, writes Frida Ghitis
updated 9:48 PM EDT, Sat October 25, 2014
Paul Begala says Iowa's U.S. Senate candidate, Joni Ernst, told NRA she has right to use gun to defend herself--even from the government. But shooting at officials is not what the Founders had in mind
updated 6:08 PM EDT, Thu October 23, 2014
John Sutter: Why are we so surprised the head of a major international corporation learned another language?
updated 5:54 PM EDT, Thu October 23, 2014
Jason Johnson says Ferguson isn't a downtrodden community rising up against the white oppressor, but it is looking for justice
updated 12:21 PM EDT, Fri October 24, 2014
Sally Kohn says a video of little girls dressed as princesses using the F-word very loudly to condemn sexism is provocative. But is it exploitative?
updated 4:06 PM EDT, Tue October 21, 2014
Timothy Stanley says Lewinsky is shamelessly playing the victim in her affair with Bill Clinton, humiliating Hillary Clinton again and aiding her critics
updated 10:14 AM EDT, Thu October 23, 2014
Imagine being rescued from modern slavery, only to be charged with a crime, writes John Sutter
updated 12:00 PM EDT, Tue October 21, 2014
Tidal flooding used to be a relatively rare occurrence along the East Coast. Not anymore, write Melanie Fitzpatrick and Erika Spanger-Siegfried.
updated 7:35 AM EDT, Tue October 21, 2014
Carol Costello says activists, writers, politicians have begun discussing their abortions. But will that new approach make a difference on an old battleground?
updated 9:12 AM EDT, Tue October 21, 2014
Sigrid Fry-Revere says the National Organ Transplant Act has caused more Americans to die waiting for an organ than died in both World Wars, Korea, Vietnam, Afghanistan and Iraq
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT