Lottery doesn’t just run itself: a whole lot of people are needed to design scratch-off games, record live lottery drawings, keep websites up to date, and work at lottery headquarters to help you after a big win. That’s why a percentage of winnings goes towards these workers and the overhead costs that run the system. But how much does that actually mean?
The answer is quite a bit, especially if you’re a state or federal government. Lotteries aren’t exactly a transparent tax, but they do provide governments with a steady stream of revenue that isn’t dependent on the ups and downs of consumer demand like regular taxes. That’s why states are so eager to encourage playing: the more tickets sold, the bigger the jackpot and the bigger the payouts.
That’s why the lottery has been so successful, and it’s also why states are so tempted to use it as a way to raise money for everything from a new bridge to a homeless shelter. And, as Cohen shows, these uses for the proceeds are only growing.
A state-run lottery isn’t just an alternative to taxation: it’s a form of marketing that exploits the psychology of addiction, aiming to keep players hooked by offering them more and more prizes. The strategy isn’t necessarily anything new: tobacco companies and video-game makers use similar tactics, but it’s unusual for a government to do so under the guise of a public service.
In the late-twentieth century, as states searched for budgetary solutions that wouldn’t enrage an anti-tax electorate, the lottery proved very appealing. It was a way to increase spending on education without raising taxes or increasing the deficit. Despite ethical concerns, most states approved it.
And the gamblers of the day loved it: as the prize amounts got bigger, sales grew even faster. It’s a strange quirk of human nature that the more the odds of winning become insurmountable, the more people want to play. Lotteries formed a rare point of agreement between Thomas Jefferson, who viewed them as not much riskier than farming, and Alexander Hamilton, who grasped what would turn out to be their essence: that “everyone would prefer a small chance of winning a great deal to a large chance of winning little.”
To keep ticket sales robust, states must pay out a substantial proportion of the prize pool, which decreases the percentage of lottery revenues available to fund things like education. But it doesn’t deter consumers: they’re not clear that they’re paying a hidden tax, and are more likely to treat the money they spend on tickets as “extra,” rather than something they must earn. And so the cycle continues. In the meantime, lottery sales have grown tenfold since 1964, with American households now spending an average of one per cent of their incomes on them. That’s more than double the figure for European countries. And it might not be sustainable. A lottery that costs more than a person’s annual earnings can quickly turn into a debt trap.