Lottery Taxes and the Politics of Gambling

The drawing of lots to determine ownership or other rights has a long record in human history. Whether it is for the award of prizes in public lotteries or private games of chance, the allocation process relies on chance. Often, players are willing to hazard trifling sums for a small chance of considerable gain. Lotteries are therefore a popular source of money for public goods and services. They are characterized as a painless form of taxation. They are also a popular way for state governments to raise revenues for their programs without the usual political frictions.

Many states have lotteries. In the United States, most are run as monopolies, and the profits of these lotteries are used solely to fund government operations. Lotteries have wide public support, and participation in them is very high. In some states, 60% of adults participate at least once a year.

Although making decisions and determining fates by the casting of lots has a long and rich record in human history, it is only since the emergence of modern capitalism that the practice has been embraced by the masses for purposes of material gain. The first public lottery was organized by the Roman Emperor Augustus Caesar to raise funds for municipal repairs in Rome. Later, in the seventeenth century, state-owned lotteries began to spread throughout Europe.

The state-owned Staatsloterij in the Netherlands is the oldest running lottery, established in 1726. In the same year the English word lottery was introduced, probably derived from the Dutch noun lot, which means “fate.”

A major problem of lotteries is their dependence on revenues that are not subject to the control and scrutiny that other taxes receive. Moreover, they have developed extensive specific constituencies: convenience store operators (the primary vendors of tickets); lottery suppliers (whose heavy contributions to state political campaigns are regularly reported); teachers in those states where lotteries’ proceeds are earmarked for education; and lottery players themselves.

Because lotteries are a form of gambling, they are heavily promoted and advertised. The advertising focuses on persuading target groups to spend their money. While this approach is a proven marketing strategy, it has serious implications for the poor and problem gamblers. It also raises serious questions about the appropriate function of a state in promoting gambling.

During the early stages of a lottery’s evolution, its success depends on a number of factors, including the number of different ways that people can purchase tickets and the number of available prizes. To maximize the potential for sales, lottery officials establish a range of prizes and prize categories. They also decide how frequently they will hold drawings and how large the prizes will be. A second important consideration is the distribution of winnings. A portion of the prize pool is normally deducted for costs and profit, and the remaining amounts are allocated to winners. Depending on the size of the prize, this can be either a single very large sum or a number of smaller ones.

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