Taxing the Lottery


In a society with inequality and limited social mobility, many people feel that the lottery is their only chance to get rich. Billboards on the highway dangle big prizes like Mega Millions and Powerball and invigorate an inextricable human urge to play. But it’s also a dangerous game, because winning the lottery requires that people bet more money than they can afford to lose.

The idea of using the lottery as a form of taxation goes back to at least the 17th century, when it was common in Europe. It helped finance a host of public purposes, and in the early American colonies it became especially popular, even though Protestants were against gambling. But it also entangled America with the slave trade in sometimes unpredictable ways, as when George Washington managed a Virginia-based lottery whose prizes included human beings.

Lottery officials try to obscure the regressive nature of their business by promoting the idea that playing the lottery is just fun. But it’s also an exercise in irrational gambling, and even the most clear-eyed players know that the odds of winning are long. Many have quotes-unquote “systems” about lucky numbers, stores where they buy tickets and the time of day they play them. They might also have a few small tricks to improve their chances of winning, like dividing their numbers into groups of evens and odds (only 3% of winning numbers are all one kind or the other).

While some countries have national lotteries that are operated by government agencies, others have private companies run them. Private lotteries often use a different method of drawing numbers than national lotteries, and their prize amounts may be much smaller. But they still have to collect and pool money from participants in order to pay out the prizes, which must then be deducted for costs of organizing and promoting the lottery and for profits and revenues for the company running it.

The modern incarnation of the lottery began, Cohen writes, in the nineteen-sixties, when growing awareness of all the money to be made in the gambling business collided with a crisis in state funding. A swelling population, rising inflation and the cost of wars made it impossible for states to balance their budgets by raising taxes or cutting services — options that were highly unpopular with voters. Taking advantage of this anti-tax revolt, New Hampshire and other states started their own state lotteries. As more and more states jumped on the bandwagon, a sense of the legitimacy of this alternative form of taxation grew in America.