Is the Lottery a Sin Tax?

The lottery is America’s most popular form of gambling. Each year people spend upward of $100 billion on tickets, and states reap significant revenue from the venture. But how much does that really contribute to state budgets, and should governments be in the business of promoting a vice?

The answer, as it turns out, is that it depends. State governments have long used lotteries to raise money for a variety of public purposes, including education. In the immediate post-World War II period, these revenues allowed states to expand their array of services without imposing particularly onerous taxes on middle-class and working-class families. But as inflation rose, and the cost of the Vietnam War grew, that arrangement started to crumble. By the 1960s, state government budgets were ballooning and putting a strain on many communities. It was at this time that the idea of a state-run lottery took hold in the Northeast, states with larger social safety nets that probably needed additional revenue to keep pace with costs.

Lottery enthusiasts tend to emphasize two things about the games: they are fun, and they can be lucrative. But these arguments obscure the fact that lotteries are inherently regressive, and that a significant share of ticket sales comes from low-income households. They also mask the underlying message that winning the lottery, however improbable, is a way to achieve wealth without having to invest a lot of time or effort into a single area.

In many ways, lottery advertising is a form of seduction: it draws players in with the promise that they can have everything they want without having to do much work. And that is a powerful message in an era of inequality and limited social mobility. Lotteries are one of the only activities that dangle the prospect of instant riches to those who have little other option.

What’s more, the lottery is not as regressive as some other sin taxes that governments have imposed in the past to raise revenue, such as those on tobacco or alcohol. This is because gambling doesn’t have the same socially harmful addiction-inducing effects of those other vices, and it also does not force anyone to part with his or her money.

Lotteries are popular in times of economic stress, but they have also won broad public approval when the fiscal health of state governments is good. As Clotfelter and Cook report, the objective fiscal circumstances of states do not seem to have much impact on whether or when they adopt lotteries. But the regressive and addictive nature of the games should make legislators think twice about their adoption, especially as they consider alternative revenue sources.