Is the Lottery a Tax on the Poor?

The lottery offers an enticing chance to fantasize about winning a fortune at a cost of only a couple of bucks. But for many people–especially those with the lowest incomes–playing can become a real budget drain, and critics complain that it’s just another disguised tax on the poor.

During the 1970s, a dozen states began lotteries in response to the need for revenue without raising taxes. In some cases, the proceeds of the state-sponsored lotteries are used to help the poor, as well as for public works projects. The lottery has been a major source of public funds for schools, libraries, hospitals, roads and canals. It is also a popular source of revenue for churches and other charitable organizations.

Lottery prizes are determined by a random process, and the odds of winning are calculated based on the number of tickets sold. After all prize-related expenses and the profit share to the organizer are deducted, the rest is available for winners. Many states set a minimum percentage of the total pool for prizes, while others distribute all of it in equal annual payments over three decades, allowing winners to choose between annuity and lump sum options.

Because lotteries are run as businesses, with a focus on maximizing revenues, advertising necessarily focuses on persuading target groups to spend their money on tickets. Critics complain that this promotes gambling and can have negative consequences for the poor, problem gamblers, etc.