Lottery Taxes


Lottery is a game in which people buy tickets for a chance to win prizes by matching numbers drawn at random. The game has a long history, going back to the casting of lots for everything from kings and saints to slaves. Today, it is an industry that generates billions of dollars in ticket sales and has a powerful presence in state politics. It also obscures a darker truth: that it represents a pernicious form of redistribution, benefiting some but disproportionately putting the burden on others.

It is easy to frame the lottery as a “tax on stupidity.” The argument is that, in an age of inequality and limited social mobility, people who spend a sizable chunk of their income on tickets are proving that they don’t understand how improbable it is to win or that they simply enjoy gambling. This is a false picture, though. Lottery spending is actually a highly regressive form of taxation, and it increases as wages and unemployment fall and in the neighborhoods where the lottery is most heavily promoted.

The real reason state governments hold and promote lotteries is that they raise a significant amount of money, a good portion of which goes to prize winners. Lottery proceeds are not, however, transparent to consumers and, unlike a straight tax on income, do not show up on state budgets as part of the implicit tax rate. This helps states keep them in place even as they look for ways to increase services without enraging a tax-averse electorate.