The lottery is a popular way for states to raise money for everything from highways to education. But what’s not often talked about is the fact that it’s also a form of hidden tax that can actually make people worse off. Despite the big jackpots that are advertised on billboards, the prize money that lottery winners actually receive is far less than it seems. That’s because lotteries pay out their prizes in the form of annuities, a series of annual payments that increase each year by 5% until the winner dies or decides to stop receiving the payments. In October of 2023, the Powerball prize was $1.765 billion. When you see a jackpot advertised on TV, it’s easy to believe that the winning ticket holder will instantly have millions of dollars sitting in their bank account. But the reality is that you’ll never see that amount of money, and even if you did, it would take at least 30 years to receive the full sum.
Lotteries have been around for a long time, and there is certainly an inextricable human impulse to gamble. But there’s much more going on here than that. The biggest thing is that lotteries dangle the promise of instant riches to people in an age of inequality and limited social mobility. That’s not just bad for the individual winners; it’s a disaster for everyone else.
What’s more, there is a big difference between the kind of lottery that involves gambling for money and those that are used in civil or political life to give away goods or services. The latter are often referred to as “the civil lottery,” and examples include a draw for units in a subsidized housing block or kindergarten placements. In contrast, the legal lottery is a draw for a court case or jury assignment, and it’s considered a legitimate business activity because a consideration (usually a small amount of money) is paid in order to be included in the lottery.
In the immediate post-World War II period, lotteries enabled states to expand their range of public services without having to impose especially onerous taxes on the middle and working classes. But this arrangement eventually broke down because of rising inflation and other factors. During the Great Recession, the number of states with state lotteries dropped by more than half. And today, the remaining ones are struggling to make ends meet.
Lottery advertising is aimed at making it seem like you’re doing your civic duty to support state programs by buying tickets, which makes it hard to question whether the money is actually being spent wisely. But there are many other things that could be done with the money that lottery players are spending. It’s also worth remembering that the percentage that lottery revenue represents of overall state funds is very small. And that’s just one reason why I don’t buy lottery tickets. I’d rather put my money into a savings account that will yield a better return.