Is the Lottery Taxing Low-Income People?

Lottery is a fun pastime for some people. It offers a chance to fantasize about winning a fortune at a cost of only a few bucks. But for low-income people, it can be a serious budget drain. Research has shown that people living in low-income neighborhoods are far more likely to play state lottery games than those from high-income areas. It’s little wonder that critics call lottery games a disguised tax on those least able to afford them.

Lotteries involve a random drawing of numbers to determine winners and prize money. Typically, the more tickets purchased, the larger the prize. Players can choose their own numbers or use a “quick pick” to have the retailer select random numbers for them. Bi-weekly drawings reveal whether any tickets are winners, and the winnings are then added to the grand prize. Lottery retailers collect commissions on ticket sales and the proceeds are also shared with the state government for overhead costs and whatever projects each state chooses to fund.

Since lotteries are run as businesses whose goal is to maximize revenues, they spend a significant amount of their revenue on advertising. This necessarily means that advertising focuses on persuading particular target groups to buy tickets, which raises questions about the broader public good. For example, does this promotion of gambling lead to problems such as compulsive gambling and a regressive impact on lower-income groups? It is difficult to answer these questions, however, because of the continuing evolution of the lottery industry.