In recent weeks, Americans have lost over three billion dollars of their personal money, with most of the losses suffered by the lowest economic classes, those who can least afford it – and it is state governments operating that scam. Furthermore, the news media is complicit, giving free publicity to the misleading big prizes, but failing to mention the losses.
I am talking about Powerball, though other lotteries are similarly misleading. Look at all the publicity about the mislabeled prize of supposedly a billion and a half dollars. And of course almost nobody looks at where that money came from: it came from losers, people who bought tickets and got nothing in return. In fact those people lost well over three billion dollars to support that alleged billion and a half dollar prize! Only half the money spent on tickets is returned in prizes. Some 40% goes to the states and another 10% to retailers selling the tickets. Since there are also prizes of lesser amounts, the money lost buying tickets has to amount to well north of three billion dollars. And since the lowest income people are the most likely to buy tickets, this amounts to a tax on the people least able to afford it. Then, on top of that, the prize is an advertising scam, payouts being well less than advertised.
In the first place, the big prizes are not cash of the amount advertised. Any winner wanting a cash payout will get only about 65% of the advertised price. To get it all, that winner must accept installments over 30 years, while the lottery collects interest on the money still unpaid. Then of course the tax man will take a big chunk of any payout, probably about half of it between state and federal taxes. That's right, the state that already gets 40% of the ticket prices then turns around and gets yet more in the form if income taxes on the winnings.
Of course, as in the case of this prize, there are often several tickets with the winning numbers, so they split whatever is left of the prize after taxes and the scam of the prize not being paid out immediately. The state is the big winner, while the holders of the winning tickets will probably end up with about 30 to 35% of the advertised prize. This is a sucker play.
Lotteries are, in fact, a variation on the idea of providing well-publicized benefits to a small number of people while ignoring the total cost spread among millions who pay the price. Chapter 13 of my book, Freedom or Serfdom?, discusses this in terms of spending tax money for projects that benefit few. The lottery does something similar, benefitting very few winners at the expense of millions of losers.
I am not naive enough to think that people are not going to gamble, but it is obscene that the state encourages an addictive activity that taxes the poor disproportionately. Nor am I convinced that lotteries are a net gain for the states sponsoring them. Gambling adicts create both social and financial problems. They often embezel to support their habit, and create family problems that damage children and put more people in jail and on welfare. The benefits of a lottery, if any, are miniscule compared to the cost citizens pay.
It is unlikely that we can, in the near future, reverse the trend of states encouraging gambling. We can, however, do our part by refusing to participate in this scam, and by trying to educate our families and friends about just how misleading lotteries are.