Americans spend upwards of $100 billion on lottery tickets each year. It’s a fixture in American society — and states promote lotteries as a way to raise revenue. But the specific benefit of those funds and whether it’s worth the trade-offs for the people who lose money is something that deserves a closer look.
A lottery is a gambling game in which participants have the chance to win a prize for a random draw of numbers or symbols. Prizes can be cash, goods or services. There are different formats for lottery games, including those with a fixed amount of cash and those where the prize is a percentage of ticket sales. The latter format is more common with modern state-sponsored games such as the Powerball, Mega Millions and Keno.
Lotteries have a long history in the United States, with some of our founding fathers running their own lottery businesses. Benjamin Franklin used the proceeds from his Philadelphia lottery to help fund a militia that would defend against French invasions. John Hancock ran a lottery to help build Boston’s Faneuil Hall and George Washington was involved in an attempt to run a lottery to finance a road in Virginia over a mountain pass, though that one ultimately failed.
But it wasn’t until the immediate post-World War II period that most states began to use lotteries as a major source of their revenue. It was seen as a way to pay for state services without imposing hefty taxes on the middle and working classes. It was an arrangement that worked well until the 1960s, when inflation and the cost of war started to eat into those revenues.
In recent years, states have tried to change the message about the lottery, promoting it as more than just a way for poor people to waste their money. They’ve also begun to emphasize the specific benefits that the revenue provides, often touting it as a way to help children or other worthy causes. But that kind of messaging is misleading, because it doesn’t put the lottery’s contribution in context with broader state revenue.
If you look at lottery data, the vast majority of lottery revenue comes from scratch-off games. These are the bread and butter of lottery commissions, with a player base that is disproportionately lower-income, less educated and nonwhite. In contrast, the Powerball and other jackpot-style games have a much more evenly spread player base that includes upper-middle-class people who buy the lottery on occasion when it has a big jackpot.
The bottom line is that while the lottery does provide some good benefits, it’s not nearly enough to offset the bad effects of the tax cuts and other policies that have helped wealthy people see their incomes rise so far. And the regressive effects of the scratch-off games make it all the more important to take a close look at how lottery revenue is being spent. And maybe it’s time to start thinking about a new approach.