The lottery is a fixture in American society, with people spending upwards of $100 billion on tickets every year. Its pervasive presence is the result of a combination of factors: People plain old like to gamble, and lottery advertising entices them with large jackpots. Then there is the fact that states need revenue, and lotteries are a convenient way to raise it without raising taxes. But what is the true cost of this revenue source? Does the state make money by offering the lottery, or is it promoting gambling that inevitably will happen anyway?
In the immediate post-World War II period, states were able to expand their social safety nets and offer better services without burdening middle class and working-class families with a ton of new taxation. But that arrangement ended with the rise of inflation and the Vietnam War. It was at this point that some states began to question the advisability of lotteries as a way to generate revenue. But others remained convinced that they were an effective way to bring in money, and so started promoting them.
A state lottery commission’s only incentive is to tell its players and voters all the good that it is doing by raising funds for a state. It has no incentive to tell them that voters get mad at politicians who need to raise taxes because the lottery isn’t making enough money for its cause.
Moreover, the lottery’s reliance on jackpots is harmful for poor communities. A study by the Howard Center found that while lottery sales might raise some revenue for local projects, “poor people are collateral damage to a policy of funding public safety and local schools by dangling the possibility of instant riches.”
To increase ticket sales, states have been experimenting with super-sized jackpots that earn them free publicity on news websites and TV shows. But these mega-jackpots come with an extra cost: they increase the chances that the top prize will roll over to the next drawing, reducing the number of winners and lowering the average payout.
There are also hidden costs to the lottery’s reliance on jackpots, such as the regressive effect it has on lower-income households. The bottom quintile of income earners doesn’t have the discretionary cash to spend on a ticket, and they may not have an opportunity to turn it into wealth through entrepreneurship or innovation.
Finally, many of the lottery’s biggest winners are non-immigrants. And for those who are lucky enough to win the big jackpot, they must submit applications with USCIS to adjust their status to legal residents. And that process can take years. For these reasons, many people wonder whether it is fair for governments to promote a game that can lead to such a regressive outcome.