We Need a National Lottery

I favor consumption-based taxation and taxation based on one’s inabilty to do math.  The average state-run lottery keeps 50% or more of the value of tickets bought.  Most states have multiple lottery games running at any time, so it isn’t a problem to have multiple games.  The problem is where to sell the tickets. One could go to commission sales, and give 5% of the sales price of the tickets to convenience store owners. We already have the infrastructure to do this, and it’s just a question of adding another game.

Were it allowed, I would be sorely tempted to have slot machine parlors much like those on military bases abroad at every Social Security office.  They need not be large, twenty machines or so. Maybe the lottery ticket sales and slot parlors could be combined.  Ticket sales at government offices would not have to pay the 5% commission because the person tending the slot parlor would be on salary, or at least an hourly wage.

The reason that I call for a national lottery is not entirely because I am a crackpot, but because people feel like they need to get something in return for their tax dollars.  A national lottery could compete favorably with state lotteries by paying out a mere 75% of what is collected in ticket sales.

2 thoughts on “We Need a National Lottery”

  1. It’s an interesting thought, but…

    Since gambling isn’t mentioned in the Constitution, under the Tenth Amendment, it goes to the states or the people. This is why lotteries are run by the states. The states can, and have, made deals among themselves to run multi-state lotteries such as Powerball.

    In the absence of a Constitutional amendment, the states could assert that a Federal lottery interferes with their Tenth Amendment rights to control (and profit from) gaming. The states can reasonably assert that a Federal lottery would take away their business.

    And while the infrastructure is there, in terms of convenience stores and ticket machines, the ticket stock says ‘New York State Lottery,’ (at least here in NY) and the back of the ticket has instructions for claiming New York State Lottery prizes. At a minimum the machines would have to be replaced, or duplicated, so that Federal lottery tickets would be clearly recognizable as such.

    But the real killer of a Federal lottery is that it wouldn’t actually help very much in terms of raising money. Let’s say that every man, woman, and child in our nation of 300 million spent $50/year on the new Federal lottery. That’s $15 billion in revenue/year. Subtracting 75% for prizes paid, 5% for commission to the ticket seller, and another 5% for administration, maketing, etc. leaves $2.25 billion: hardly a drop in the bucket in a time of trillion (1000 billion) dollar deficits.

  2. I had estimated that the best that could be done with a federal lottery would be in the range of $2-5 billion, which is almost a rounding error in terms of the budget. What it would do is emphasize the extremes that people are willing to go to avoid increasing marginal tax rates. There would be an interstate commerce argument much like that made for the Affordable Health Care Act in the case of a federal lottery. It would wind up all the religious folks who think that gambling is a sin.

    A larger problem with an expansion of gambling is that the people who like to gamble REALLY like to gamble. Most studies argue that the social costs of gambling are higher than the revenue that they raise, so we’d be better off without state-sponsored gambling. One can argue that the slower the pace of gambling, the less addictive it is, because addiction has to do with the rapidity of rewards.

    When they passed Amendment 64, legalizing recreational use of marijuana in Colorado, the pitch was that it would raise $50 million per year for the construction of new schools, and anything left over would go to the state treasury. It wasn’t on the table, but it’s been discussed to have an expansion in casino gambling here in Colorado beyond the “historical mining towns” (Black Hawk, Cripple Creek, and Century City, I think) where it is allowed. Pueblo is lobbying for a casino and there are indian casinos in the western part of the state. Anyway, I preferred legalization of marijuana to an expansion of casino gambling. I don’t think that Amendment 64 will raise as much money as people hoped, because it’s proving more complicated to implement than they expected, and cities will lose the revenue from the marijuana possession tickets that are a minimum of $150 in Pueblo. I doubt that this raises more than $50,000 per year in Pueblo. Gaming revenues in Colorado are taxed at 25%, which is higher than New Jersey and Nevada (7-8.5%) and the table games rate in Pennsylvania (18%), but lower than the slots tax rate in Pennsylvania and Maryland (33-66%).

    The trend in taxation for at least 20 years has been to increase user fees and bring in gambling of various kinds rather than to raise taxes. The pitch for casino gambling in Maryland was that it would be used to keep down the cost of college tuition in Maryland by creating an endowment for state colleges. What people don’t consider is that it is very, very easy to reduce the state’s appropriation for college funding by 50-80% of what is brought in by gambling. They get their endowment fund, but it doesn’t grow very fast. Maryland may well be the first state where caino gambling fails because the initial fees to build a casino are so high and the tax rate is 66% of the profits. For a casino operator in Maryland to make their normal profit, the games would have to be worse than scratch-off lottery tickets for the players.

    Even when Virginia brought in the lottery in 1990 or so, they needed the fig leaf of saying that the money woud be used for education. Having been through the New Jersey Lottery and Introduction of Casino Gambling Experience as a teenager, I expected the lottery money to be reprogrammed for the general fund within two years of the time that the lottery started up, and sure enough, a little over a year after the lottery started, the governor announced that lottery revenues would go to the general fund. No one objected, at least not in a meaningful way.

    Clinton proposed a federal tax on gaming revenues in 1995 or so, which got nowhere. I think that eventually we will sort out a way to tax online gaming, legalizing it, which will raise some money at the state and local level, but not that much compared to casinos. What prevents most people from gambling online is the fact that banks will not let you take a cash advance or use your ATM card at an online gaming site, but they will let you do it at a casino.

    The lesson to take away from alternative ways of raising money to pay for public services might well be that they are quite limited. The money might help, but the revenue stream tends to be small compared to what is collected for income taxes in states that have an income tax. The governor of Pensylvania might brag that people got a $250 reduction in their property taxes because of casino gambling, as Ed Rendell did, but that was limited to the areas that hosted casinos. 5% of casino profits in Pennsylvania go to the local area supplement, which pays a certain amount of money to the town that houses the casino.

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