Bruce Murphy
Murphy’s Law

State Lottery Preys on the Poor

Even winners lose from this hugely inefficient tax on the poor.

By - Jun 30th, 2016 11:38 am
Wisconsin Lottery 2015 scratch tickets. Photo from Facebook.

Wisconsin Lottery 2015 scratch tickets. Photo from Facebook.

Has legal gambling plateaued in Wisconsin?

That’s the title of a recent report by the Wisconsin Taxpayers Alliance, which shows that the state lottery generated $155.6 million in 2015 to help reduce property taxes on residential properties — down from $171.4 million in 2013 and $166.5 million in 2014.

Though the report is well-researched, its own figures show the lottery’s annual revenue has had some large jumps and declines over the last two decades, and this might simply be another of them. But the WisTax description of the lottery — it’s clear they don’t like it — is certainly on target: “the amount of property tax relief it generates is modest. It remains an inefficient and regressive way to generate state revenues,” the report complains.

Indeed, the impact of the lottery on Wisconsin has been largely negative, to a degree most people probably don’t understand.

State lotteries put government into the business of selling people on a sucker’s bet. There’s no form of gambling where such a low percentage of the money spent (about 56 percent in Wisconsin’s lottery, a tad higher than in most states) is returned to gamblers. Horse racing, slot machines, casinos, all pay anywhere from 80 percent to 97 percent. Economics professors Charles Clotfelter and Philip Cook once did a computer simulation of what happens in a typical, high-jackpot lottery: If 1,000 players each bet $2 a week for five years, 98 percent of them will lose money.

And its typically low-income and minority citizens who buy lottery tickets. “On average, state lottery products are disproportionately consumed by the poor,” a 2005 Brookings Institution paper concluded. A 1998 investigation by the Washington Post found that the lotteries in Maryland, Virginia and the District of Columbia rely on “a hard core of heavy players, who, on average, have less education and lower incomes than the population as a whole.” Among heavy players in Virginia, “one in six had household incomes of less than $15,000, according to the lottery data.”

These heavy players are a small portion of the total population of low income people, but the consequences are ugly. Studies suggest nearly all of the lottery gambling was paid for by spending less on non-gambling items, including clothing, food, and rent.

“State lotteries have a business model that’s based on getting up to 70 to 80 percent of their revenue from 10 percent of the people that use the lottery,” Les Bernal of the group Stop Predatory Gambling told USA Today, calling them “the poster child for the rising unfairness and inequality in our country.”

The Powerball lottery, as the jackpot rises, tends to attract more middle class and even upper class customers. Yet the result, whoever wins, is not a pot of gold at the end of the rainbow, but the basest of metals.

As Mario Quadracci reported in a 2006 story for Milwaukee Magazine, “Lottery Hell,” most winners lead terrible lives as a result, hounded by relatives and con men for money. Quadracci requested the names of every Wisconsinite who won at least $500,000 since 1988, when the lottery began. What he found was a high incidence of financial problems (including frequent bankruptcy), criminal arrests, divorce and alcohol and drug problems. Similar results have been found for lottery winners nationally.

When the lottery was passed, it was touted as a way to fund the schools or generate huge tax relief. In fact, it’s made barely a ripple. In the 2013-2014 fiscal year, that $166.5 million in tax relief amounted to just 1.2 percent of the state’s total budget of about $14 million.

Yet legislators of both parties are loathe to lose that tiny payoff, and have themselves become addicted to the lottery. The 1987 legislation included a proviso saying only “informational” ads could be used to sell the lottery, but the ads are clearly meant to sell gambling, though less hard-sell than in other states. In 2006, after revenue dropped badly in the prior year, the legislature approved a whopping 63 percent increase in the lottery’s “information budget” – those supposedly nonpromotional ads. The annual advertising budget rose from $4.6 million to $7.5 million. (It’s still $7.5 million today.)

Meanwhile, state lottery managers have over the years added and changed games to keep customers hooked. As WisTax details, “The lottery offers a combination of instant and lotto (on-line) games, some exclusive to the state and some multistate. Instant games include ‘scratch’ ticket games and pull-tab games. New instant games are introduced as old ones expire. Currently, 63 instant games are offered, with prices ranging from $1 to $30. Lotto games include five daily draw games (SuperCash, Daily Pick 3, Daily Pick 4, Badger 5, and 5 Card Cash) and four jackpot games (Powerball, Wisconsin’s Megabucks, MegaMillions, and Monopoly Millionaires’ Club).”

As a way to collect taxes, the lottery is hugely inefficient. In 2013-14, the state spent $73 million, or 30 percent of the net money raised (over and above the prize money paid out) on administrative costs, WisTax notes. That included $38.4 million to retailers who sell the lottery tickets and $18 million for Game Development and Production,” as a Legislative Audit Bureau study found. By contrast, the state spends just 0.4 percent of the total raised for income and sales taxes on administration, WisTax notes. That makes the lottery 750 times higher in its administrative costs.

And most of the money collected through the lottery comes from poor people and benefits mostly middle and upper class homeowners, who benefit from a property tax credit.

The saddest aspect of the lottery is it puts the government in the position of sanctioning gambling, leading people to try it because it seems socially acceptable. Ultimately, about 1 percent of gamblers become serious problem gamblers, one study showed, estimating this caused $300 million in social costs each year in Wisconsin. It’s difficult to see how this lives up to the mission of government to promote the general welfare.

Categories: Murphy's Law, Politics

18 thoughts on “Murphy’s Law: State Lottery Preys on the Poor”

  1. AG says:

    So the conclusion is that low income people are too stupid to understand the odds of the lottery? Should we just pass a law that makes it illegal for low income people to play the lottery?

    How is $150 a year a small number here, but when we talk about the state projected deficit $150 is a huge number and the state is bankrupt?

    I had an acquaintance once have two separate discussions with me. One was that the lottery was a tax on the poor and it was wrong to have something they can spend their money on instead of food and shelter… in another conversation he said we shouldn’t stop the poor from buying weed and even harder drugs because it’s a free country and we should let them do what they want with their money. How many other people have similar hypocrisies?

    (End of 6th to last paragraph, says state budget is $14 million)

  2. DTY says:

    Buying a lottery ticket is completely voluntary. Unless you can show that advertising and promotion is specifically targeted to low-income populations or that there is misleading or incorrect information, then buyer beware. I personally have benefitted tremendously from the lottery because I have literally never bought a lottery ticket but get all of the appropriate tax refunds.

  3. Vincent Hanna says:

    Doesn’t the lottery curse tend to impact people from all walks of life who win big? I remember a 60 Minutes story about a wealthy older man who won millions and lost it all because of poor decisions. Rich or poor, if you win the lottery hands will come out.

    “And its typically low-income and minority citizens who buy lottery tickets.” Do we know if that’s true in Wisconsin?

  4. 23rd Street says:

    You really needed a study on this? spend one day in the hood you’ll see the lady with 3 kids rent due dropping $50 bucks on lottery and $15 on Cheetos. Natural Selection, if you are too dumb to make good decisions then you get what you deserve. The Lottery doesn’t prey on anyone, dumb people prey on the lottery, just one day I’ll win! This is bleeding heart liberalism at it’s finest. Has common sense just gone out the window. It’s life deal with it!

  5. Vincent Hanna says:

    Lotteries are liberal? And I know a lot of conservative people, wealthy people, and wealthy conservative people who play the lottery regularly. I’m guessing you don’t spend any time “in the hood.” But talk radio says it so it must be true.

  6. Sam says:

    I don’t think the State Government should be in the business of encouraging gambling, regardless of who it impacts.

    Let those who choose to gamble go on down to Potowatomi if they need to waste their money.

  7. fightinbobfan says:

    I just hate it when white middle class people talk about what’s going on in the hood because you really don’t know what is going on in the hood and in people’s heads. Yet they will talk about this stuff because they inherently hate these people and it makes them feel superior.

    Yes, poverty is about bad choices but there is something about poverty that makes people make bad choices. Feel free to come back at me on this one, but again, you won’t know what you are talking about.

    The problem with most Americans is that they have no idea what odds are. They will reason that someone has got to win, so why not me when the numbers are way, way stacked against you.

    Sadly, this kind of calculation falls into other areas. People in the lower middle class will justify big tax brings on income they’ll never see but back this and vote in people who back this because, “hey, I’ll be rich some day too.” Statistically you won’t and you are voting for people who make sure it stays that way.

    And, its the same way with guns, Again, there is a disregard of statistics that shows the gun is far more dangerous to you and your family but you reason, “hey, if I need it I’ve got” even though your chances of being accosted are remote. I did doors for a Republican assembly candidate once in Brookfield and what did I hear to be the big issue — conceal/carry.

    People fail to get real with their lives and it happens up and down the sociological scale. In fact remember the Nigerian prince come-on? Turned out a lot of wealthy Americans not only responded but they went to Africa, with many of them being robber and killed.

    So if our tempted to go off on minority people of color, it happens to anyone.

  8. To all you social darwinians (“dumb people prey on the lottery,” etc.):

    Even while stipulating that all you say is true, it seems straightforward to me that a public revenue-generating mechanism that harms members of the public is bad policy. I’m also surprised that people of your ilk are unperturbed by the gross inefficiency of the program. Seems like precisely the sort of thing you’d like government to get out of. Surely the private sector would do a better job!

    For my part, I’ve always felt that it corrupts citizenship to have people pay for government services with the promise of a chance to become improbably wealthy, rather than an honest sense of civic duty.

  9. AG says:

    If the poor are as unintelligent as they are being described here… there’s a whole lot of other things we need to determine for them regarding what they should be allowed to purchase.

  10. Jason says:

    I don’t see the harm in people poor or not spending some money on entertainment.

  11. fightingbobfan says:

    People who have studied gambling addiction do see the harm, and the harm eventually costs the rest of us.

    I know someone who found himself so in the grip of the addiction that it led to his suicide. His family had to deal with that.

  12. tim haering says:

    I’m with AG mostly. Hope swells turgid, oblate as the earth, where opportunity is thin as a pain. But who among us does have some hope that starkly outweighs reality? I’m still hoping JOhn Kasich will catch fire and over-run Trujplestiltskin. EVen without the LOttery, the poor would be poor. Jesus knew it. In some way, we are all poor.

    Cheers, Bruce. Dig SUmmerfest!

  13. Gary says:

    Thanks Bruce Murphy and for some really interesting comments here. I’ve watched mostly older white adults buy lottery tickets while I’m in line for bus tickets (now tran$it card upload). Frankly, many of them act like the stereotype of a junkie.

    I’m one voter who thinks the State has no business being in any lottery business, and it wouldn’t be if law-makers weren’t just as susceptible to the fantasy of a quick fix for issues they are paid to manage.

    Where’s the right-wing objection to a government entity being involved in a business venture?

  14. Allison says:

    I guess I sort of remember folks who write for this blog and others saying Governor Walker should have approved the Kenosha casino to pay for a new Bucks arena. But now we have a different opinion, apparently.

  15. Bruce Murphy says:

    lots of good comments here, a few points: (1)I distinguish between legal gambling and state-run gambling. Having a state promote and run gambling sends a signal that its okay; (2) poor people like all people can make bad decisions, all the more so if struggling to survive and while they may gamble anyway in casinos, the lottery spends considerable money paying retailers to make lottery tickets as convenient and easy to buy as possible, leading to impulse buying; (3) this is not a partisan issue, the lottery has always had bipartisan support

  16. Jason says:

    So I went to see the new X-men movie and most critics stated it was a bad movie. I went any way because I like the X-men. The critics were right it wasn’t as good as the other movies but it brought value to me. I think the fantasizing of being wealthy brings value to lottery junkies as well.

  17. Leon says:

    How true! Gambling is a tax on the poor…And the stupid! (i.e. those who do not understand the word and calculations of
    “ODDS”. And the bullshit slogan “Please gamble Responsibly” To anybody who is in the gaming business their best customer is the compulsive gambler who will ignore the warning, anyhow, and play on.

  18. bill kurtz says:

    Bruce, you’re right about gambling cutting across party lines. I heard Charles Franklin of the Marquette Law School poll discuss results of questions on issues where the split in 2014 didn’t necessarily follow partisan lines. On gambling and drunk driving, both Walker and Mary Burke supporters were pretty evenly divided. Interestingly, Walker supporters were slightly more likely to favor expanded gambling and oppose tougher laws against drunk driving- both the opposite of what would reflect traditional values.
    I’m against pretty much all gambling, but the lottery may be the most insidious. It’s as though government didn’t merely legalize and regulate alcohol, but bought advertising telling us to head for happy hour and belt down a few for property tax relief.
    Great column.

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