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April 5, 2013 |
The following article is part of AlterNet's series on poverty, Hard Times USA.
State
lotteries amount to a hidden tax on the poor. They eat up about 9
percent of take-home incomes from households making less than $13,000 a
year. They siphon $50 billion a year away from local businesses—besides
stores where they’re sold. And they are encouraged by state-sponsored
ads suggesting everyone can win, win, win!
State lotteries, which once were illegal, now exist in
most states.
What many people don’t know about lotteries is that they prey on those
who can least afford it; most people never win anything big; and 11
states raise more money from lotteries than from corporate taxes. Beyond
the moral, mental health or religious debates over gambling, lotteries
are another example of how society preys on the poor and the
working-class.
Let’s look at why state lotteries do far more harm than good—especially at the bottom of the economic ladder.
1. Legalized gambling is almost everywhere.Legalized gambling is available in every state
except for Utah and Hawaii. This includes state lotteries, which are in
42 states,
Puerto Rico and Washington DC. Lotteries were illegal for most of the
20th century, but that changed in 1964 when New Hampshire—a state
without an income tax—
reinstituted
a state lottery. The first lotteries predate the American Revolution,
but those mostly privately run efforts were so corrupt they were
completely
prohibited by every state in 1894.
2. They suck billions out of the economy.In 2009, $50.4 billon was
spent on state lottery tickets and video kiosks. The government
pocketed
$17.9 billion of this total in 2010, which breaks down to 30 percent in
profits and 8 percent in administrative costs, including advertising.
The rest went to prizes and commissions to stores selling the tickets.
Many corner stores could not remain open
without the income from lottery sales.
3. They are a tax from anti-tax politicans.
Tax-averse Democrats and Republicans have increasingly been relying on
state lotteries to subsidize basic public programs like schools instead
of raising taxes for that purpose. In 11 states—Delaware, West Virginia,
Rhode Island, Oregon, South Dakota, Georgia, Michigan, Ohio, South
Carolina, Texas and Washington—the lottery raised more
per person
than corporate income taxes. “The long-term shift in tax burdens from
capital and corporations to individuals and their activities is perhaps
best illustrated by the rise of state lotteries,”
wrote tax expert David Cay Johnston, calling lotteries “the most heavily taxed consumer product in America.”
4. They hit the poorest the hardest. “Simply put, lotteries take the most from those who can least afford it,”
wrote
economist Richard Wolff. “Instead of taking those most able to pay (the
principle of federal income tax in the U.S.), state leaders use
lotteries to disguise a regressive tax that falls on the middle and even
more on the poor.” A 2010 study found that households with take-home
incomes of less than $13,000
spent
on average $645 a year on lottery tickets, which is about 9 percent of
their income. The reason people play lotteries varies, but it
mixes hopes and dreams with desperation: poorer people
see it as a slim chance to radically improve their standard of living.
5. Communities of color, less-educated spend the most. Numerous academic studies have found that non-whites spend much more on lotteries than whites, with
one study putting the figure at $998 for African Americans and $210 for whites. Household with incomes under $25,000
spent an average of about $600 a year, while $100,000-plus earners spent about $300 year. People who never graduated from college
spent the most, about $700 a year, while graduates spent under $200.
6. They redistribute money up the economic ladder.
Most people buy tickets and win little or nothing. This is taking more
money from the poor, working and lower middle-classes than from those
most able to pay taxes. These billions also are diverted away from local
businesses—with the exception of the stores where tickets are sold.
“This is exacty the opposite of the kind of economic stimulus a
depressed economy needs,”
wrote economist Wolff.
7. They give the wrong message about solving poverty.
Lotteries reinforce libertarian political messages, suggesting that
everyone needs to take individual action in response to socirty’s
inequities, even though the government has helped well-connected
individuals, businesses and industries become rich for decades. This
easy money for states diverts political debate away from society-wide
analyses and solutions to what prevents people from moving up the
economic ladder. Instead, it
pushes individuals in marginal circumstances toward gambling as their hope for gain.
8. They amount to one of the highest investment tax rates.
Another way to look at the social policy hypocrisy surrounding state
lotteries is to skip the moral dimension—the religious objections to
gambling, the mental health costs of gambling addition, the hidden state
income tax—and just compare the tax rates on this form of investment
with tax rates on other types of inventments, such as stocks. State
lotteries impose a 38 percent tax
rate
on buying tickets, according to Johnston. No taxes are paid when a
person buys a stock or bond, a more preferred investment vehicle for
wealthier households. Moreover, the current federal
tax rate for earnings from short-term investments—held less than a year—ranges from 10 to 35 percent.
9. Hypocritical when compared to state drug laws.
One of the rationales for criminalizing drugs is that abuse leads to
addiction, which harms individuals, families and society at large. But
state-sponsored gambling
also feeds
addictive behavior—people who are addicted to gaming, including
lotteries. “I work in a convenience store and the way some people are
addicted to the lottery is downright sickening,” wrote toddpugz,
responding to a DailyFinance.com
report
on the topic. “I see people every day who scrape together their last
few pennies to play the lottery. Even worse are the ones who claim the
lottery is ‘fixed’ but continue to play it on a daily basis. And let’s
not forget those who actually ‘study’ past numbers thinking it will give
them some insight into the next day’s numbers.”
10. Big winners often see their lives unravel. One of the
surprises that comes with winning the lottery—for the rare few who win big—is how a fast infusion of money can
wreck families, disrupt
friendships and even invite
violent crime,
con-men, and
targeting by jealous family
members. Some winners
spend all their winnings in
no time. Others just use it to fuel more gambling
binges.
Revenue-strapped
state legislatures may see state lotteries as an easy way to bring in
the hundreds of millions that they need for basic government
services—schools, police, roads and social safety nets. But state
lotteries have become an easy way to take from the least wealthy
Americans and avoid the harder task of making everyone pay their fair
share. State lotteries may be as old as America, but so is the country’s
history of economic exploitation.
Steven Rosenfeld covers
democracy issues for AlterNet and is the author of "Count My Vote: A
Citizen's Guide to Voting" (AlterNet Books, 2008).
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