Lottery Revenue and State Budgets


Lottery is a form of gambling that involves buying tickets for a prize, such as money or goods. Each ticket has a number or symbols that are drawn by chance. People can play the lottery on the Internet or in stores, and they can win a large sum of money by matching all the numbers. The odds of winning vary depending on the type of lottery and how many numbers are in the pool. Some states have more than 50 balls in their pools; others have less. Some states adjust the odds to attract more players and keep their jackpots growing.

Lotteries are a part of American culture, with the average American spending about $80 billion on them each year. But they also raise serious questions about the state’s relationship with its citizens. In a new essay for the Harvard Law Review, Adam Cohen looks at the way that lottery revenue has been used by states to fill gaps in their budgets, and what that means for the quality of state services.

In the early years of American history, Cohen writes, lotteries were seen as a “merit-based solution” to state funding issues. In a time of rapid growth and social safety net expansion, the money that came from lotteries allowed states to expand their offerings without raising taxes too much. But by the nineteen-sixties, that arrangement began to falter as inflation and the cost of the Vietnam War slowed America’s economic growth. Lottery revenue was growing rapidly, but the increase in state spending that accompanied it was straining a lot of state budgets.

Advocates of legalization reframed the argument, saying that a lottery would allow states to cut back on taxation and instead pay for one or two line items that were popular and nonpartisan — things like education, elder care, public parks, and even aid for veterans. This was a more credible and less shady proposition than trying to sell the lottery as a magical silver bullet that could float every state’s entire budget.

As a result, the lottery became more than just a way to help struggling families buy homes and cars; it was a tool for reducing taxes. That’s a big problem. As Cohen points out, when state governments rely on the revenue from lotteries to make up for gaps in their general funds, they may find that those lottery dollars end up being largely spent on things like prison construction and police hiring.

In fact, the lottery is a bit of a “tax on stupidity,” as Cohen puts it. Sales of the games increase when unemployment rises or incomes fall, and advertising is heavily promoted in neighborhoods that are disproportionately poor, black, or Latino. And a large percentage of the money outside your winnings goes to commissions for lottery retailers, overhead for the lottery system itself, and state government, which uses it to support infrastructure projects, gambling addiction recovery programs, and more.