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Lotteries once served to build this country. Today they tax the poor
America is a land of lotteries. Over the past 50 years, the percentage of the population living in a state with a legal lottery has jumped from 0 to 95 percent. And satisfaction with the games runs high—a 2006 Pew survey put the approval rate at more than 70 percent. The public likes the revenues that lotteries bring to state coffers, the fact that these revenues are not forcibly extracted (but rather are volunteered by those who choose to play) and the array of good causes the revenues support. Only eight of the 43 states with lotteries send all lottery revenues into their general fund, to be distributed across the full range of government programs. The rest earmark at least some portion for specific aims, often putting the money into a fund or trust—the sort of lockbox Al Gore touted for Social Security during the 2000 presidential campaign—to protect the proceeds from state legislators seeking to feed strapped budgets.
The good causes designated to receive lottery funds vary widely. The states of Colorado, Minnesota, and Maine direct part or all of their proceeds to natural-resource conservation, parks, and outdoor programs. Kansas spends its on economic-development initiatives (and prisons). Massachusetts uses the revenues to subsidize city and town governments; Wisconsin uses them for property-tax relief. Pennsylvania’s lotteries support programs for senior citizens.
But far and away the most common earmark for lottery funds is public education. Twenty-three states funnel at least some lottery revenues to this cause, with 18 dedicating all lottery proceeds to it. Some states simply transfer the money to their department of education; others fund particular measures, such as college scholarships, pre-kindergarten, school construction, teacher training, or community colleges. Together, these allotments have given rise to the expression “education lottery.” The term has made its way into the official names of several enterprises (the Tennessee Education Lottery Scholarship Program, the North Carolina Education Lottery, and the Oklahoma Education Lottery Trust Fund, to cite just a few). But it is used in a colloquial sense as well, an indication of how firmly established the connection between lotteries and education has become. As the New York Times reported in October 2007, polls show that many citizens believe their public schools are “largely supported” by scratch tickets and other games of chance.
Tethering means to ends is routine practice in public financing. Gasoline taxes go toward highway infrastructure; hunting licenses help pay for wildlife conservation; taxes on pollutants contribute to environmental cleanup—in each of these cases, an intuitive connection obtains. However, there is no natural linkage between the lottery and any core public service—let alone education, which seems especially incompatible with playing a game one has little hope of winning. “Education lottery” may not be the most jarring union of means and ends ever suggested in government revenue enhancement—that distinction surely belongs to a proposed 2007 Texas bill to tax strip clubs for the benefit of public elementary schools—but as a concept it is something of an oxymoron. And as public policy it may be deeply harmful—to many individual lottery players, to already disadvantaged segments of our citizenry, and to society as a whole.
Lotteries bring together strange bedfellows: greed and charity, compulsion and voluntarism, self-interest and the common good. Still, they have been with us from the start. In colonial and early national American history, lotteries raised money for both private and public ends. Because few individuals could afford large purchases of property (whether land or slaves), one-time lotteries, or raffles, were routinely held in lieu of auctions. The owner or creditor set a specific value on a property and offered enough tickets—usually several thousand—to bring in at least that sum in sales. Buyers paid a small amount for their chance, and an otherwise prohibitive purchase price was distributed among a large population. No less a towering (and debt-ridden) figure than Thomas Jefferson sought to dispose of his entire holdings, including Monticello, through such a vehicle in his waning years. Although the Virginia legislature authorized Jefferson’s lottery in March 1826, the former president died a few months later, before the offering could take place. A posthumous attempt failed to generate sufficient ticket sales, so his estate was sold off piecemeal instead.
Notwithstanding this unhappy example, lotteries in early America tended to have a democratizing effect, as they enabled vast holdings or sums to pass quickly from the wealthy to individuals of lesser means. Sometimes they also led to disruption, as the case of Denmark Vesey illustrates in the extreme. Vesey was a slave in Charleston, South Carolina, in 1800 when he won $1,500 in the local East Bay Street lottery. He naturally used his winnings to buy his freedom, and spent the next 22 years working as a carpenter in the city—all the while plotting a slave rebellion that was discovered and brutally suppressed before it could be launched.
Most lotteries in early America, however, were intended to raise funds for the common good—for public construction and other projects. Colonies and, later, states and the young federal government authorized the games, but private businesses typically ran them, often reaping huge profits through commissions and fees while dispensing just a small portion of the revenues—sometimes as little as 15 percent, compared with about 30 percent today—to the cause at hand. (For example, as the gambling historian David Schwartz has described, a Massachusetts lottery chartered in 1811 to raise funds for Plymouth Beach paid out nearly $900,000 in prize money over nine years and yielded handsome earnings for the administrators—but gave the state only $10,000 to make the necessary improvements.) Buying a ticket was promoted as a patriotic act, just as during the Second World War buying war bonds would be cast as a patriotic duty. Lotteries helped to finance the Continental Army and the construction of Washington, D.C.; the upkeep of Long Wharf in New Haven, Connecticut; and the rebuilding of Stoughton Hall in Harvard Yard. They were used to fund churches and poor houses—even to ransom citizens held hostage by Native American tribes. Most Americans in this period, Schwartz has observed, “saw lotteries as sensible ways to contribute to the greater good—and get something for nothing, or next to nothing.” But as the 19th century progressed, corruption increasingly beset the lotteries, and by 1860 all but three states had banned them.
The bans did not last long. Several Southern states, having scant funds with which to rebuild after the Civil War, re-authorized private companies to run games, and taxed the proceeds. Here too, though, corruption rose along with revenues. The infamous Louisiana Lottery—dubbed “the Serpent,” in part for the predatory manner in which it was managed—grew from 1868 to 1892 into a sprawling interstate enterprise whose million-dollar annual profits dwarfed the $40,000 annual tax it paid the state for the right to operate. Daily drawings provided frequent small prizes, and the occasional grand prize kept players dreaming of big payoffs, but the Serpent used its state-granted monopoly status (and constant bribes) to prevent any real oversight of its payout rates, which were minuscule overall. By the end of the century, anti-gambling activists succeeded in getting most lotteries outlawed again, although many illegal lotteries persisted.
Reformers suggested at the time that the states counter the spate of illegal games with highly regulated lotteries of their own, but the notion went unheeded. When the modern wave of lotteries washed over the nation, it was the lure of new revenue, more than the prospect of stamping out corruption, that caught legislators’ attention.
New Hampshire pioneered the modern state lottery in 1964, with a semiannual drawing to benefit education. The measure passed only after a 10-year battle in the state house, and drew vituperative comment from around the nation (was “this shabby dodge . . . the only way out” of New Hampshire’s fiscal difficulties? The Reader’s Digest wondered); however, the game itself quickly took hold. The following year New Hampshire expanded the prizes and increased the frequency of drawings. New York and New Jersey soon instituted lotteries as well, with New York offering the nation’s first million-dollar jackpot in 1970—and the arms race for gambling revenue was on. States adjacent to those with lotteries fretted about losing revenue from border-crossing citizens and hastened to put in place lotteries of their own. During the 1970s, lotteries sprang up in 11 more states, mostly in the northeast and mid-Atlantic. They spread westward in the 1980s and to the last holdout region—the South—in the 1990s. Multi-state lotteries, meanwhile, began in 1988 with Lotto America, the precursor to Powerball; this was joined eight years later by the game now known as Mega Millions, which has paid out jackpots as high as $390 million.
Despite our lotteries’ checkered history, few Americans today view them as a moral problem. A recent Ellison Research poll found that although 87 percent of Americans said they believed in the concept of sin (defined by surveyors as “something that is almost always considered wrong, particularly from a religious or moral perspective”), only 18 percent identified “playing the lottery” as a sin—well below the 47 percent who had such qualms about “gossip.” Protestants were more likely than Catholics to perceive lotteries as sinful (31 percent versus 7 percent), conservatives (at 24 percent) more likely than liberals (9 percent). To borrow the language of the Gallup polling organization, gambling overall is a “consensus issue.” It is acceptable to nearly as many Americans (63 percent) as is divorce (65 percent).
Even though Americans may look kindly on (their fellow) gamblers, using lotteries as a means of public financing is problematic on several counts. First are some purely fiscal concerns. Lotteries are inefficient: Their administrative costs average 10 percent, a figure driven by the aggressive marketing needed to ensure their success. (The administrative costs of a broad-based tax are only about 1 percent.) Lottery revenues are unstable; they fluctuate constantly and are difficult to forecast accurately, with obvious consequences for the entities depending on them. And despite all that marketing, lotteries actually produce little revenue relative to overall state budgets. In 2006, states took in a combined total of $17 billion in lottery profits—a hefty sum, to be sure, but when broken down it accounted for only about 2 percent of their collective budgets. Income taxes and sales taxes, by contrast, each contributed about 25 percent.
The most widely cited downside—and a much more disturbing one—is the highly regressive nature of lottery revenues. Lotteries draw far more from the poor, as a percentage of total income, than from the rich. Sales taxes on foodstuffs and other necessities often come under fire for the same reason, but according to some sources, the regressive effects of lotteries are twice as great.
A massive two-year study by the National Opinion Research Center at the University of Chicago gathered fine-toothed data on America’s lottery players. In a 1999 report to the federally funded National Gambling Impact Study Commission, several of the nation’s leading policy economists parsed the results. They concluded that about half of Americans play the lottery, a participation rate that remains remarkably constant (between 47 and 57 percent) across virtually all demographic categories and incomes. (Only senior citizens fall below this range, with a 39 percent participation rate.) But they found huge variations in lottery spending, which rises as income drops. Lottery players with an annual household income of $50,000 to $100,000 spent, on average, $225 a year; those players earning $25,000 to $50,000 spent $382; and those earning less than $10,000 spent $597—more than 5 percent of their income. As the economist Earl Grinols put it, “Lotteries . . . take money away from . . . those [whom] most would agree should not be used as a tax base.”
Consider the data on race and education, and the picture grows even more lopsided. Lottery spending is highest among African-American players, who spent $998 per capita in 1999, compared to $289 for Hispanics and $210 for whites. And the more education one has, the less one is likely to spend on lottery tickets, assuming one plays at all. This inverse correlation is dramatic: Whereas high school dropouts who played the lottery spent an average of $700 a year, college graduates spent just $178. Small wonder that the lottery is sometimes called “the math tax” or, even more crassly, “the stupid tax”: Well-educated people may play for fun, but they rarely invest much in it.
Particularly cruel ironies are therefore at work when it comes to education lotteries. Simply put, a successful education lottery (like any lottery) depends on the meager fruits of poor education. In addition, education lotteries compound the regressive nature of lottery revenues, because much of the proceeds go to programs that disproportionately benefit the middle and upper classes.
The State of Georgia, for instance, operates a widely admired lottery that channels revenues to three educational causes: pre-kindergarten; technology grants for computer purchases and teacher training; and a flagship program of scholarships called HOPE (Helping Outstanding Pupils Educationally). HOPE offers $3,000 awards to high school students with a B average or better for use in paying tuition and other expenses at any of Georgia’s public colleges, universities, or technical schools. After only 16 years, the program is so popular that it is seen as an untouchable benefit, largely because so many middle-class residents are recipients. Lotteries in several other states, including South Carolina, Florida, Tennessee, and New Mexico, likewise deliver hundreds of millions of dollars to merit-based scholarships.
These programs are laudable in that they aid many residents of their respective states and encourage the pursuit of higher education. Nonetheless, students with the grades to qualify for college tend to be either from the middle or upper class. Such scholarships succeed mainly in redistributing revenue upward.
If voters and policymakers want to reduce the regressive effects of the lottery, they might do so most dramatically by increasing the winnings (which currently average some 60 percent of revenues). This would at least return more money to the pockets of the lower-income players who predominate.
More realistically—since net revenue maximization and enhancement of the public good are the goals of every state-run lottery—the states could assign the proceeds to poverty relief and economic development. Public education is a form of poverty relief, to be sure, perhaps the most effective form we have, but it operates in a generational time frame. More immediate relief could be achieved by augmenting social services for the hungry, unemployed, and homeless, and through business-development training and loan programs tailored to the poor.
Certainly, lottery revenues help millions of students. But direct, broad-based taxes earmarked for education would be a more evenhanded means of achieving that end. Just as certainly, we should question our tolerance of a mechanism that taps the yearnings of poor people in order to pay for services that everybody—one hopes—might enjoy.
Erik C. Owens is the associate director of the Boisi Center for Religion and American Public Life at Boston College. His essay is drawn, by permission of Baylor University Press, from Gambling: Mapping the American Moral Landscape, which he edited with Alan Wolfe. (©2009, Baylor University Press). The book came out of a conference that took place at Boston College in October 2007.