Lotteries as regressive taxes

Abbas has an interesting post at 3Quarks about the ethics of gambling.

Abbas argues that is gambling is morally problematic because it exploits near-universal human weaknesses in probabilistic reasoning. He thinks its bad enough when private businesses sponsor gaming for consenting adult customers. State-sponsored gambling he thinks is really beyond the pale.

State lotteries are often justified on the grounds that they raise money for social programs, especially those that target the neediest members of society. However, the poorest members of society tend to spend (and, by design lose) the most on lottery tickets. Some state lottery proceeds fund programs that benefit everyone, not just the poor. Often state lottery money is being systematically redistributed upwards--from lotto players to suburban schools, for example.

I'm ambivalent about state lotteries (and I don't know enough about the economics of state-sponsored casinos to have an opinion on those). I agree that state lotteries are unseemly for the reasons that Abbas points out. On the other hand, maybe the fun of playing the lottery combined with the revenue for social programs justifies their existence on the whole.

I know, lotteries exploit human weakness. Admittedly, I'm somewhat hostile towards people who buy lottery tickets. Or at least towards people who buy lots of lottery tickets. I can sort of see the entertainment value of an occasional Mega Millions ticket. But playing the lottery heavily is just stupid. I'm not saying that these feelings are morally or rationally justified. Really, I shouldn't care what consenting adults do with their pocket money.

I've always subscribed to the maxim that a lottery is a tax on idiocy. If people think it's fun to give their money to the government, I don't know why they should be stopped. People aren't going to stop gambling if the State gets out of the business. They'll just spend their money in the underground economy, or through private gambling establishments that will pay back a much smaller percentage of that money in taxes. I realize that this argument might be motivated by my aforementioned morally indefensible feelings of hostility, so feel free to discount it accordingly.

On the whole, I tend to think that the ethics of a State lottery depend entirely on the empirical details of the lottery in question.

Comments

[greensmile]

I spent my highschool and college years in Reno NV. We enjoyed extremely low taxes. The place attracted/created an underclass of truly pathetic loosers, some adding an addiction to substances to their bizarre thought that they would eventually recoup a life of losses at the tables. It was a small and managable underclass, and with very few locals since you can't keep a job and a house in the terminal stages of these addictions. A night in jail, a bus ticket back to Sacramento or SF and Reno's problem was solved.
It is not pocket change that matters, it was the welfare checks that got cashed, no questions asked.

I moved to Boston for grad school just before the commonwealth shouldered organized crime out of the numbers racket. The usual moral leaders did the usual handwringing and conscience questioning. 20+ years later, the state's chunk of the proceeds are divied up among school districts so most of us are not feeling that bad about it. The winners make the news but the vast pool of losers just quietly lose. It is, from a cognitive standpoint, such a strange thing to me that such a poorly reinforced activity would not be completely extinguished in all but the most deranged members of our society. You could convince such people of the superior virtues of a Bush presidency!

We who do not have, and may simply be immune to such addictions can look down our noses at the fools who, in effect, reduce OUR tax burden by paying more than their fair share. Whats fair? Life's tough, huh?

I do accept that argument that vices from which a segment of the population simply can not refrain are, for all our sakes, better administered by the state than by either criminal enterprises or "legitimate" enterprises.

The ads for something like "gamblers anonymous" and the news stories aghast at underage gambling have been showing up in the last few years. Atlantic City, then Foxwoods, then Mohegan Sun bring the lever of the one armed bandits closer and closer but no casino in the commonwealth ....not yet anyway.

[Lindsay Beyerstein]

Good points, GS. But do you think that most people who play the lottery are addicts? I don't mind the state taxing alcohol, even though a small percentage of alcoholics probably contribute disproportionately to the total tax revenue from liquor sales. If all or most lotto players played compulsively, I'd have to agree that the state probably shouldn't be involved. However, I suspect most players are consenting adults who aren't in the grip of an addiction.

[PSoTD]

It is not surprising at all many governments has moved from horseracing revenues to lotteries and now to casinos. It is the perception of "easy money" that is really the only moral compass politicians are following in this case.

Buyers become the client. Government is buying into gambling and becoming a client thereof. At some point, it becomes more important to government to convince taxpayers to gamble (and therefore create government revenue) than to save, or invest, or anything else that does not create the same immediate revenue.

In short, government policy promoting gambling also promotes immediate gratification of expenditure over longterm value of gratification. For some things there may be a social benefit that requires that promotion. Gambling isn't one of them.

[Stephen Frug]

I've always subscribed to the definition of "a lottery" as a tax on idiocy

I must admit that I think that this is the sort of thing said by people without much contact with the people in question. At best it's a tax on people poorly served by the U.S. educational system -- hardly the same thing.

But in fact I think that it's a tax on hope. In my (admittedly limited) experience, middle-class people, who have jobs that were chosen with a wide degree of opportunity and which tend to be more enriching, don't buy lottery tickets. People who are working-class, whose jobs suck and whose prospects for getting to somewhere where they have interesting jobs are limited, buy lottery tickets. It gives them a possibility -- however small -- that their lives might improve. Perhaps it's even a tax on the fantasy that life could be better regardless of actual hope.

[aa]

I've always simply thought of the lottery as a tax on people who are bad at math.

I think the line "of "a lottery" as a tax on idiocy" is a much, much better description.

[Nancy]

Really, I shouldn't care what consenting adults do with their pocket money.

Unless they buy doggie stairs?

I used to work in a liquor store that sold lottery tickets. Most of the people who bought tickets regularly were old and not well-off (it was a working class town.) I think Stephen Frug is on the mark with his observations.

These are people who don't have any realistic options for bettering their circumstances so it's either the lottery or give up entirely.

It's a type of magical thinking, like people who tithe to their churches - both are hoping to parlay a small amount of money into a big win. Actually, the lottery players at least are honest about wanting material wealth - and rarely do they tell other people they're going to be punished horribly, eternally, for failing to play the lottery.

[Daryl McCullough]

I don't see why you (or Abbas, in the original article) believe that it is idiocy (or lack of understanding of probability) behind people's desire to gamble. Many people who buy lottery tickets may be unable to compute their expected payoff, but they are surely aware that most people never win big at the lottery. There are several different costs and benefits of playing the lottery (1) the few dollars that the tickets cost them, (2) the thrill they get from anticipating and hoping for winning the big one, and (3) the disappointment they get when they lose. Whether it is worth it to play or not depends on how much the positive reward of (2) outweighs the negative costs of (1) and (3). The expected value is not particularly relevant.

[Squashed Lemon]

loterry is definitely wrong.

if there is some acceptable balance, it would be casino type establishment in gated community.

Let the people who have spend their money gambling it away. In the end they all will be screwed anyway. Proof? Abramoff and friends.

[dan]

two things:

"or through private gambling establishments that will pay back a much smaller percentage of that money in taxes."

For what it's worth, the numbers always paid off significantly more than state lotteries do. In part that's because the mafia had to establish a certain legitimacy; it's easier to be confident that New York State will give me my money than to believe Don Corleone will. It's also got a lot to do with scale; state lotteries are able to offer preposterously large payoffs, whereas the numbers tended to pay jackpot winners amounts in the thousands or ten thousands, just because they had a smaller pool of participants and were involved in an all-cash environment. I can't remember who said it, despite googling (which probably means I'm misremembering it) but I could have sworn that there was a famous mafia trial in which some mobster went off on a tangent about what crooks the states were, because they were taking in vastly more than any self-respecting numbers runner would.

2) re: comments along the lines of "In my (admittedly limited) experience, middle-class people, who have jobs that were chosen with a wide degree of opportunity and which tend to be more enriching, don't buy lottery tickets."

I don't doubt that on a per capita basis, lottery is regressive as hell. I should note, though, that I work at a law firm; all of the lawyers here make well in excess of $100,000, and virtually everyone I've talked to buys lottery tickets on a regular or semi-regular basis. There are, in fact, competing pools; I know of at least three consortia that get together and buy a copule hundred bucks worth of mega millions tickets when the jackpots get over $100m or so (I've been known to join in, largely because I would be driven insane by jealousy [and overwork] if ten of my friends won, walked in, and quit one morning).

If it's worth anything, I do think the claim that it's a tax on hope is pretty close to the mark. Unfortunately, it's a really desperate kind of hope.

[dan]

"Whether it is worth it to play or not depends on how much the positive reward of (2) outweighs the negative costs of (1) and (3). The expected value is not particularly relevant."

it's all about declining marginal utility. A payoff of $10 (or $100, or $1000) isn't enough to get most non-addicted people to place very expensive (i.e. expected value considerably less than price of entry) bets, but $10 million is so radically transformative that a lot of people will take a shot at it even if the odds of winning are far, far less than one in ten million (as with the mega millions).

[twig]

"It's a type of magical thinking, like people who tithe to their churches"

... excuse me? I was under the impression that most people tithed to their churches in order to fund the good works their church does, or to fund the church itself, and not for some sort of 'god jackpot'.

Unless you're talking about planary indulgences.

[squashed Lemon]

or to fund the church itself, and not for some sort of 'god jackpot'.

Posted by: twig | January 23, 2006 at 06:37 PM

worst, the jackpot itself never been proven to exist... (false hope?)

(ie. what makes one think, 'maintaining' church is socially more usefull than, say, maintaining a social club building, a health center, swimming pool, etc ...)

Now, yes, one can argue that very 'hope' can function as glue to society. But I for one like to say it like it is. A bamboozle fest, for feel good club. (hmm, I am in cynical mood today.)

[markg]

Separating suckers from their money is a time-honored American tradition. So why shouldn't governments practice it too? My advice to lottery playing idiots is this: take $100 to a casino. put it down on one roulette number. If you win, let it ride, and if you win again let it ride a third time (assuming you can find a casino to let you do this). If my math is right, and depending on the odds the casino gives you, the odds of winning three in a row is about 50,000 to one, and the return will be $4mil plus on your bet, versus the 55 mil to one odds the biggest lotteries offer for sometimes not much more of a prize. (how many millions do you need anyway?) Actually, the point is not to suggest people do this, but to point out what an incredible ripoff the lottery odds are, making its players even bigger fools.

[John]

Like you, Lindsay, I'm somewhat ambivalent about state lotteries. I do view them as a regressive tax, but I don't feel it's my place to tell people how to spend their money. On the whole though, I am more opposed to lotteries than indifferent. I look to the Preamble of the Constitution to describe government's role:

- Establish justice
- Ensure domestic tranquility
- provide for the common defense
- promote the general welfare
- secure the blessings of liberty

How the government finances its role is subject to debate, but I don't think it should do it in any way that conflicts with its original mission. I think a lottery goes against promoting the general welfare when it exploits the weakness of even a small segment of the population. That, however, is just one person's humble opinion.

[Abbas Raza]

Hi Lindsay,

I completely agree with Stephen Frug that the lotteries are a tax on hope not on "idiocy". The govt doesn't make it particularly easy to know what the exact odds are, and most people don't have the math skills to compute very complicated odds. They are just desperate, and the lottery offers them FALSE hope.

I am not saying there shouldn't be lotteries, or gambling in general. I am just saying that the government should not be in a business which exploits a human weakness, especially one that is disproportionately (through lack of education, desperate situations, etc.) common among the least fortunate. Smoking is such a weakness (in which I indulge), and while I don't support bans on smoking, I don't think the govt should be encouraging people to smoke by putting ads on TV showing glamorous people hobnobbing with martinis in one hand and cigarettes in the other. Instead, it should be warning people of the dangers of smoking, as it does.

As Dan correctly points out, private enterprise (whether legal or illegal) has always paid FAR more than the govt does, so the argument that it is better for these inevitable addictions to be handled by the govt is not convincing. In any case, I am sure the govt could provide better crack, but I don't see many people encouraging it to do so. That was the point of my sarcasm at the end of my article.

One last point: while luck is always a large part of how successful we are, the govt should not be sending the message that the way to lift oneself out of poverty is through luck. This creates the impression that the rich are rich because they are lucky (and some of them are) and you could be too by winning the lottery, not because they worked at getting an education, or invented something, or were good entrepreneurs, or whatever. This is hardly a great message to be sending to society at large. We should be striving for more equality of opportunity, not telling people, hey, it's all just about luck, so don't bother trying to change your situation. Sit back and relax and keep playing the Lotto!

[Scott Hagaman]

Excellent post. Abbas is correct to point out that the lottery is not a tax on "hope", but rather a tax on "false hope". Obviously, given my opposition to the state in general, I'm not a fan of state run lotteries. This seems irrelevant, however, because given my political views, it should at least be legally permissible for individuals or groups of individuals to run lotteries with the same bad odds the government gives. So I want to isolate the question of the moral permissibility of state run lotteries from the moral permissibility of lotteries (with horrible odds) in general. The mileage I get from this point may vary, but I'd really prefer to consider the morality of the lottery in the abstract, absent from considerations on how the money is spent and by whom. That said, it's not so clear to me that it really is morally permissible for people to spend their "hard earned money" any way they like. And it's also not clear to me that it's acceptable for people to play on "false hope" and ignorance to swindle (that's loaded) money out of others. Usury, for example, may be morally unjustifiable. How much different is the state lottery? Only once these questions are settled in the abstract can we turn to whether or not the state is permitted to run lotteries.

[lotto]

It is the perception of "easy money" that is really the only moral compass politicians are following in this case.

When the Colorado Lottery was first approved by voters, it was with the express limitation that the revenues be used for parks and recreation. Since then, the legistature has twice tried to appropriate the revenues for the general fund. So far, they've been rebuffed, but I don't see that lasting forever. While I might take some comfort in the knowledge that my lottery losses fund open space, it's an awfully inefficient mechanism, and I don't believe the politicians will be able to keep their fingers out of the pie.

[Eli]

Unless I've missed it, I haven't seen anyone cite any compiled information about individual lottery players in terms of their perceptions of the odds against them or their self-described motivations. Does that information exist? Seems like it'd be relevant.

My experience mirrors dan's. Lawyers love lotto.

[Bob in Pacifica]

I'm a retiree now, and I've been buying lotto tickets for a couple of decades now. I know it's not a wise investment, it's magical thinking, and as a "tax" it more adversely affects poor rather than rich. As does the tax on alcohol or cigarettes.

There was an ad campaign here for the California Lottery: "You can't win if you don't play." Which is true. One chance in 150 million is better than no chance, and that dollar, or all the dollars you spend over the course of your life, will not propel you into mega wealth. I sometimes daydream about what I'd do with a big payoff: buy a house for my daughter, fully pay for her education for as long as she wants; buy things that loved ones need. Giving my daughter a buck and saying, "Here's a down payment on your house" may be more fiscally responsible, but...

My major complaint with state lotteries is with what happens to the state's profits. Not that I have anything against the money going to state schools, just that once that revenue stream opened up, the state started cutting back taxes going to schools. That is, instead of additional funding for schools we end up with lottery monies as replacement funding.

[pebird]

One problem with State lotteries is that they legitimize gambling through their monopoly and reinforce fantasy. Whether that is the role for the State is an another discussion.

As far as a "tax on idiocy" goes, tell that to the $60MM SuperLotto winner. You are asking people to abstract their personal experience and desire to statistics. I'm sure we are all guilty of that behavior in one form or another. Being desperate shouldn't bring ridicule.

Unregulated private lotteries would expose the population to the reality of gambling and bring the marginal and unscrupulous together - a more sensible lesson for all of us.

[Bob in Pacifica]

P.S.: I do agree that there is a weakening of group action (like labor unions) when concepts like "luck" are promoted as the means for individuals to succeed.

There was a very interesting article about lotteries in THE BAFFLER a while back. They publish so infrequently I don't know when it came out.

[Squashed Lemon]

Off topic alert.

speaking of lottery, have ya'll vote for best 2006 bloggie? all nominee of thisyear political blogs have been 'lefteee...' !! (vote FiredogLake, please. Her new blog needs the spotlight.)

http://2006.bloggies.com/

(and the blog I am guest posting at is nominated for best 'spanish' blog'... but the darned thing is almost 95% in english. lol.)

[Matthew]

It is important to keep in mind that the original purpose of state-sponsored lotteries was to counter the illegal numbers racket. And, given the recent explosion of off-shore internet gambling, there is every reason to believe that eliminating the lottery would only drive people back to the illegal games. At least with state-sponsorship you can regulate the gaming, and no one gets their kneecaps broken.

[David]

First, I think we can distinguish between slot machines and poker. If you enjoy playing poker, then you're paying for that enjoyment. However much money you sit down with is how much it's worth to you. As for slot machines, roulette, and craps - I personally don't understand the thrill. It's frivolous, to be sure, but I wouldn't go as far as calling it idiotic. You're paying money in exchange for the thrill of possibly winning. Assuming that consenting adults know this going in, I don't see the problem.

[twig]

worst, the jackpot itself never been proven to exist... (false hope?)

(ie. what makes one think, 'maintaining' church is socially more usefull than, say, maintaining a social club building, a health center, swimming pool, etc ...)

Now, yes, one can argue that very 'hope' can function as glue to society. But I for one like to say it like it is. A bamboozle fest, for feel good club. (hmm, I am in cynical mood today.)

Churches can do many good things for the communities they are a part of, not just vague ideas of 'hope' and 'feel good bamboozle fests'. After-school programs, clothing and food and shelter for the homeless, social and emotional support for members of their communities, aid to their communities and abroad and about a thousand other things, I'm sure.

Of course, that isn't to say that giving money to another organization like the ones you mentioned isn't a bad thing, or that certain churches do nothing with parishoners money but spend it on themselves. I was just a little alarmed of the idea of a tithe and a lottery being treated as equal concepts, becuase I don't think the spirit at the center of a tithe is at all the same as that of a lottery ticket.