News Release

Lotteries: A Regressive Tax

ALICIA HANSEN
BILL AHERN
Hansen is staff writer and Ahern is the communication director for the Tax Foundation. Hansen said today: “Most Americans don’t think of lotteries in terms of tax policy. The lottery conjures up images of smiling Powerball winners displaying $10 million checks for the TV camera or perhaps stories of lottery players suffering financial ruin or gambling addiction. But in between these two extremes is the less glamorous but equally important issue of the lottery’s effect on state tax policy. In fiscal year 2005, total consumer spend­ing on lotteries surpassed $50 billion, and the average American spent $177 playing the lot­tery. Over $15 billion of this revenue was trans­ferred to state coffers. The significant revenue-raising potential of state lotteries raises serious tax policy concerns. Although no government agency is willing to call the lottery a tax, it is nonetheless a source of implicit tax revenue. [However,] when subjected to the tests of sound tax policy, it fails.”

Hansen added: “Extensive evidence shows lotteries are regressive, meaning the poor shoulder a disproportionate share of the tax burden. The lottery is not economically neutral: it distorts consumer spending by applying an unusually high tax rate to a particular product. It is a hidden tax, lacking transparency. Lotteries unnecessarily complicate the tax system. Lottery revenues do not always benefit the programs for which they are earmarked, and voters may feel deceived when they approve lotteries for education only to find that legislators shuffle funds and their states’ public education systems do not benefit significantly. Finally, the use of state-operated gambling monopolies to raise tax revenue poses serious policy questions about government accountability.”
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PHILIP COOK
Cook is a professor of Public Policy Studies at Duke University and the co-author of Selling Hope: State Lotteries in America. Cook is the co-author of numerous studies on state lotteries including “Implicit Taxation in Lottery Finance” where he co-wrote: “State lotteries as they are operated in the United State today involve four distinct aspects: legalization of lottery games, monopolistic provision by the state, marketing of lottery products, and extraction of a portion of the surplus they derive from sales for state revenue. [Examining] the implicit tax levied by lottery agencies through this fourth function, … we find that the implicit tax is regressive in virtually all cases.”
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For more information, contact the Institute for Public Accuracy at (202) 347-0020; or David Zupan at (541) 484-9167.