Lottery Taxes


A lottery is a game in which participants pay a small sum of money and have a chance to win big prizes. Prizes range from cars to houses, but the most common prizes are cash and sports tickets. It’s a form of gambling, but unlike most other forms of gambling it relies entirely on chance and does not involve skill. It is a popular form of gambling in the United States and many other countries. The lottery was first used in the Low Countries during the fifteenth century to raise funds for town fortifications and charity for the poor, but it did not become popular in England until 1567 when Queen Elizabeth I chartered the nation’s first lottery.

Cohen’s book focuses on the modern lottery, which became popular in the nineteen-sixties when state funding began to erode because of inflation and the cost of the Vietnam War. States, particularly those that had built a generous social safety net, could no longer balance the budget without raising taxes or cutting services, which were both deeply unpopular with voters. Lottery proponents hoped that the lottery would provide enough revenue to finance those government services and avoid taxes, but when ticket sales declined they were forced to reframe their argument. Instead of arguing that the lottery would float most of a state’s budget, they started to argue that it would cover a specific line item, invariably one that was popular and nonpartisan, like education or elder care.

Lottery sales fluctuate with economic fluctuations, and Cohen shows how these fluctuations have shaped the way the games are run. For example, the odds of winning a large jackpot increase as incomes decline and unemployment rises, and sales spike even more when advertising is heavily concentrated in neighborhoods that are disproportionately poor, black, or Latino. He also points out how lottery marketers have exploited the psychology of addiction, using everything from glitzy ads to the look of the tickets themselves to keep players coming back for more.

Most of the money outside the winnings ends up going back to the participating states, who have complete control over how that money is spent. Many states put it into programs aimed at helping people with gambling problems, while others invest in infrastructure and other government services. In general, lottery proceeds are a form of hidden tax that consumers don’t think about in the same way that they think about taxes on cigarettes or video games.

The final chapter of the book is devoted to the controversy over the use of lottery proceeds in Florida, which was one of the first states to legalize a state lottery in 1993. There, proponents of the lottery argued that it was a good way to fund school districts, but critics countered that the money went to crooked operators and to support a system in which some people had an advantage over other people. A judge ruled that this was not fair, and in 1999 Florida stopped funding the lottery.