A lottery is a gambling game in which participants buy tickets for an opportunity to win prizes based on their luck or chance. Those who have the numbers that are drawn—whether they are drawn randomly by a machine or chosen at random by players—win the prize. In addition to the common financial lotteries, there are also social lotteries, where people pay for a chance to be assigned a certain unit in a subsidized housing block or to attend a particular kindergarten.
The first lotteries may have begun in the Low Countries in the 15th century, and historians believe that they were used to raise money for a variety of town functions, including poor relief. The term “lottery” was derived from Middle Dutch loterij, meaning ‘action of drawing lots’ (see Oxford English Dictionary).
In the United States, state-sponsored lotteries began in the post-World War II era, when many states lacked sufficient revenue to finance their growing array of social safety net services, and the lottery seemed like a painless way to raise the funds needed. The state’s reasoning was that lottery winnings were inevitable, and it might as well be captured by a legal mechanism that would avoid more onerous taxes on the middle class and working classes.
Most states run several different types of lotteries, but scratch-off games are the bread and butter of lottery commissions, accounting for 60 to 65 percent of total sales nationwide. These are regressive; they draw primarily from the bottom quintile of income distribution and take a huge share of their discretionary spending. Other popular games include Powerball and Mega Millions, which attract upper-middle-class players. These games are not as regressive as the scratch-offs, but they still account for only about 15 percent of all state lottery sales.
Some states have a third type of lottery—a raffle, which offers a cash prize to anyone who enters the draw. These are a little less regressive, but they’re not nearly as equitable as the other two kinds of lotteries. The raffles are often marketed as “civic” events, in which the proceeds benefit local charities, but they’re not transparent about how much money goes to which organizations and how much to the winner.
The big problem with all of these lottery games is that people are foregoing the opportunity to save for retirement, college tuition, or a down payment on a house. By buying a lottery ticket, they’re contributing billions to government coffers that could have been saved with lower taxes. That’s a significant tax increase that should be a concern to all of us.