On July 16th a Maryland man and woman purchased a lottery ticket at 3 Star Beer & Wine, located in Gaithersburg. Two facts make this event newsworthy. First of all the ticket was a winner landing them a cool $250,000. Second the winning numbers were 02, 15, 18, 20, 39, and the Mega Ball was 34. These numbers were actually found on an old ticket in their recently deceased uncle’s belongings and they decided that as a tribute to him, they would play the numbers on that ticket for the Friday drawing. They won.
They said they would use the money to pay their bills.
This was one of those news items that gets my mental motor running. Some say that lotteries are a “poor tax” or even “tax on stupidity” because most of the people who play them regularly are sacrificing something more important on their budgets, like food, in order to play.
Lotteries have been around since history began. There is a strong belief that the Han Dynasty in China used Keno slips, a lottery, to build the Great Wall. The Celtic people used to draw lots of wood, teulet pren. The Iliad mentions that they used Agamemnon’s helmet to draw lots, to decide who would fight Hector.
The early Americans used lotteries to fund the Revolutionary War. In fact Alexander Hamilton said "Everybody ... will be willing to hazard a trifling sum for the chance of considerable gain and would prefer a small chance of winning a great deal to a great chance of winning little."
All noble motives to raise money, unfortunately the people with the least resources are usually the most willing to take the highest risk for that “chance of considerable gain” and the State is willing to take advantage. Thus the Poor Tax reputation is well served.
Considering the economy of late, I was surprised to hear that the Georgia Lottery (considered to be the best run, most profitable of all the US lotteries) was experiencing only a slight drop in ticket sales. Receipts for the 2010 fiscal year were about $3.64 billion — down slightly from the $3.66 billion for the previous fiscal year. What does this tell us? People are out of work, on unemployment, on welfare, food stamps, in the worst economy since the Great Depression and the Lotto sales are only down $20 million.
This raises other questions for me.
Let me share two recent announcements and let’s see if side by side they make sense to anyone?
1) The Georgia Lottery Corp. announced that profits increased again during the 2010 fiscal year
2) Lottery revenue didn't generate enough money for HOPE (the Georgia Scholarship fund) during the 2010 fiscal year, and state officials for the first time in nearly a decade tapped into a $1 billion reserve fund. The reserves are projected to drop to about $373 million by the end of the 2012 fiscal year, according to the Georgia Student Finance Commission, which oversees HOPE. The commission is scheduled to meet with members from the state House and Senate education committees Aug. 2 to discuss the program's finances and possible changes. Commission leaders have recommended lawmakers amend the program during the next legislative session, warning the program could run out of money if long-term changes aren't made.
Does anyone see what I see here? Slight drop in sales of the best run, most profitable lottery and they can't support the one program that was used to sell the lottery to Georgia voters in the first place? I think everyone knows that Lottery money doesn’t supplement what is put aside for education, it replaces it. In other words the money the state earmarked for the budget goes somewhere else, and in a sense the Lottery becomes a tax to support education.
Of course when I asked a few people they just hadn’t realized this. Here is a quote from someone who knows:
"Lottery dollars are revenues that the states would not have otherwise," says Tennessee Lottery president Rebecca Hargrove. Hargrove has run the lottery in Illinois, Florida, Georgia, and now, Tennessee. She argues things would be even worse without lotteries, and that they are more popular than raising taxes as a way to increase the education budget.
So this is a popular tax?
So where does all the money go? The best break down I could find quickly was something put together by Michael Mayo of the Sun Sentinel. He gives the following figures for Florida’s 2009 Lottery.
“Last fiscal year, around 58 percent of the lottery's $3.9 billion in sales went to the prize pools, 8 percent went to vendor fees and commissions, and nearly 2 percent went to administrative costs, including advertising.
That left 32 percent for education. Last year, the Lottery transferred $1.28 billion to the Florida Educational Enhancement Trust Fund. The fund also got a little over $100 million from Broward casino slot machine revenues. Not all the trust fund money goes to public schools. Here's a breakdown of the trust fund allocations for last year:
Ok so 58% of the $3.9 billion went into the prize pool.
Let’s just say that every dollar was paid out in winnings (not likely but humor me) That would be $2.62 billion. Great right?
Not really. What about the tax on winnings going to the IRS? According to my reasearch it could be as much as 38%, almost $1 billion dollars. Georgia would take another 6% for state income tax Another $157 million that would not be earmarked for education. This leaves winnings actually taken home of $1.5 billion.
There is big money here for Government isn’t there? About $1.2 billion in actual tax revenue added to the $1.3 billion in Lottery revenue and we can clearly see that the house wins.
I don’t buy Lotto tickets, can anyone tell me if there is sales tax on the purchase? If there is, we are seriously talking about triple dipping here, but even if there is no sales tax, I think we can see that Florida still realizes a healthy income from the Lottery.
I have to wonder this though, how many years did Uncle Maryland Man play those numbers at the 3 Star Beer and Wine?