Is the Lottery Really a Tax?

A lottery is a gambling game that involves paying a small amount of money (a ticket) for the chance to win a large prize, usually a sum of cash. Lotteries are legal in some countries, but are often illegal in others. Regardless of their legality, they have become a major source of revenue for governments. They are often defended by the argument that they are a legitimate form of taxation. However, this argument is flawed. In his article, Cohen explains why the lottery is actually an economic nuisance, and that it is largely responsible for America’s growing deficit.

Cohen begins his argument with a brief history of the lottery. While he acknowledges that early lotteries were not corrupt, they nevertheless posed a fundamental problem: They were unable to raise enough money to pay for state programs without imposing taxes or cutting services, which would be unpopular with voters. As a result, many states turned to the lottery in search of new revenue sources.

Historically, lottery operations followed similar paths: The state legislated a monopoly; established a public corporation to run the lottery (as opposed to licensing a private firm in return for a share of the profits); began with a modest number of relatively simple games; and then, due to constant pressure to increase revenues, progressively expanded the lottery’s size and complexity.

Lottery advocates argue that the money that states make from the games benefits society as a whole. But this argument is flawed, because it fails to take into account the fact that lottery profits are a regressive tax on low-income people. As a result, the amount of money that low-income people spend on lottery tickets exceeds the amount of money that they would spend on other commercial products.