The Public Debate About the Lottery
State and national lotteries generate more than $100 billion in sales each year. They are among the most successful business enterprises in the world. Yet they are often criticized for the harm they do to poor people and problem gamblers, as well as the questionable nature of their relationship to public policy. And there are other concerns, such as whether state governments should be running a gambling industry at all.
In the early 17th century, lottery games grew in popularity in the Low Countries. Towns held public lotteries to raise money for town fortifications and for charitable purposes. People bought tickets for small prizes that could include goods or services, including food, beer, and land. The winners were chosen by a draw of lots. These types of lotteries have since been used to decide who receives a government contract, what room assignment one gets in a hotel, and how much money someone can win in a legal casino.
During the Revolutionary War, the Continental Congress relied on lotteries to raise funds for its military operations. Alexander Hamilton argued that people would be willing to “hazard a trifling sum for the opportunity of considerable gain,” which could be considered a form of voluntary taxation. These public lotteries became popular and helped to finance many American colleges, including Harvard, Dartmouth, Yale, King’s College (now Columbia), and William and Mary.
Most states now have their own lotteries. They are regulated and run by a state agency or public corporation, and they usually begin operation with a modest number of relatively simple games. They then progressively expand, in response to demand and pressure for additional revenue. As the industry evolves, public debate and criticism shifts from the desirability of a lottery to specific features of its operations, such as the distribution of proceeds to the public and the impact on lower-income groups.
As a result, despite the fact that the vast majority of lottery revenues are collected from ticket purchases by individuals, critics charge that lotteries are a type of hidden tax on all citizens. Moreover, they argue that advertising for the lottery is misleading and deceptive, presenting information about winnings that is inaccurate or exaggerated. In addition, the prize payout structure is often flawed. In most cases, winners must choose between an annuity payment and a lump-sum cash prize, which is less than the advertised jackpot amount, considering income taxes that must be withheld.
Finally, the fact that state governments themselves in a sense “win” the lottery twice is problematic. The first time comes when they distribute the money after the winning ticket holders are paid out. The second time is when they use the revenue to collect a state income tax from their residents. Only Alaska, Florida, New Hampshire, South Dakota, and Tennessee do not levy a state income tax. The other states collect upward of 13.3%, the highest rate in the country. Some critics have argued that this is unfair and should be changed.
State and national lotteries generate more than $100 billion in sales each year. They are among the most successful business enterprises in the world. Yet they are often criticized for the harm they do to poor people and problem gamblers, as well as the questionable nature of their relationship to public policy. And there are…