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October 26, 2005

Lotteries: A way for states to recoup welfare costs?

OpinionJournal's Holman Jenkins uses the so-called scandal of Harriet Miers' tenure on the Texas Lottery Commission as an opportunity to rip into the very idea of state-sponsored gambling. It doesn't matter how lotteries are presented to the voters; this is the reality:
Lottery tickets are what economists call an "inferior good"--demand grows as you go down the income scale. They are also highly taxed: At least 40% goes to the state, unless you think a lottery ticket itself is a tax on stupidity, in which case the tax is 100%.

Lotteries don't solve fiscal problems: The Texas proceeds go into a "Foundation School Fund," but that hasn't stopped legal and political wars over education funding from being the nemesis of the past three Texas governors. Studies increasingly conclude that lotteries don't add to state revenues in the long run. They just shift the burden of taxation from higher-income households to lower-income lottery players.

The ultimate refinement of this insight might have been a 1997 paper by economist Sam Papenfuss, which showed a strong correlation between lottery adoption and welfare spending. He concluded that lotteries operate as a mechanism by which taxpayers are able to reclaim some of the money they're forced to spend on welfare programs.

Lotteries advanced on the same wave of voter frustration that led various states in recent decades to adopt balanced budget amendments, property tax caps and requirements for legislative supermajorities to enact tax hikes. Lotteries are but a symptom of a growing standoff between the beneficiaries of federal transfer programs and the taxpayers called to support them.


Ray said...

Not to mention the universally negative impact "winning" the lottery has on your life, brought to bear in spectacular fashion by Mr. Jack Whittaker

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