The Lottery is Like a Regressive Tax

There has been a lot of news lately on the lottery.  There was a jackpot worth $640 million, although not really when you take the lump sum and you take away all of the taxes.  There were three tickets that won.  The ticket sales for this one drawing were reportedly near $1.5 billion.

I consider the lottery like a tax on the poor.  Maybe a tax on the lower class is a better description.  Sure, there are middle class people who buy tickets and there are even people with good incomes and high net worths who buy tickets.

There is a difference between poor and lower class.  I have seen a description of class as your outlook for the future or your time preference.  If you have a low time preference and can look far into the future, then you are not lower class, even if you don’t have much money.  People who live for today and who have a high time preference are lower class.  It doesn’t mean you can’t have fun today.  But you do need some planning in life to get out of that lower class mentality.

The lottery is a joke.  For this particular one, the odds of winning were about 1 in 176 million.  I’m not looking down on you if you bought a ticket.  Perhaps you wanted to be part of the mania.  But if you were banking on your retirement plan coming through with 6 winning numbers, then you better have a plan B.

The lottery makes most people poorer.  When I say “most”, I mean probably 99.999% of people who play.  It is like a tax.  The government takes a good cut of the money to pour into the state indoctrination systems, otherwise known as schools.  Governments also use the money for other things like buying votes, paying lobbyists, and making more people dependent on government.

If I am going to give up my money gambling, I would rather send it to a casino which is a legitimate business.  Lotteries are a government monopoly.  And the governments take a much bigger cut than the house in a game of blackjack, or even playing the slots.

I could never figure out why people all of a sudden get so excited when the jackpots grow to huge amounts.  There are some people who drive long distances to other states just to buy lottery tickets for that one drawing.  Some people spend twenty dollars, forty dollars, a hundred dollars, or even more at the chance to win.  Why weren’t these people doing this when the jackpot was smaller.  Is three million dollars or ten million dollars not enough for you?  You get “serious” about it when it gets up into the hundreds of millions?

The ironic thing is that the odds are much better in the other games.  For this last huge jackpot, you have to pick the Mega Ball number exactly.  In other lotteries, you can pick any six numbers in any order.  Your odds are much better, even if still remote.  So again, three million dollars isn’t good enough for you?  You will only make a big effort if the jackpot is in the hundreds of millions?

Of course, we have all heard the stories of lottery winners who go broke.  Worse, they end up ruining their lives or the lives of others with drugs, depression, greed, etc.  These are the lower class people.  They probably make up a majority of the people playing the lottery.  They don’t know how to handle getting this large sum of money all at once.  It is overwhelming to them.  In contrast, there are stories about lottery winners who stay grounded and make good decisions, although there seem to be few of these.

If you took everybody in America and took all of the money and divided it up equally amongst everyone, my bet is that 80% of the people would be back near where they started within five years.  The other 20% were probably headed up or down anyway, regardless of the redistribution.

It is not about the money.  It is about mentality.  Some people can see into the future and plan and others will live for today.

3 thoughts on “The Lottery is Like a Regressive Tax”

  1. I tend to think of the lottery as a tax on the mathematically challenged. I have no qualms about people dropping a buck or even two on it. You can file that under the heading “cheap entertainment.” Basically you are buying a daydream and it’s less expensive than going to the movies. I spent a buck myself when it got really crazy. But if you are spending more than that it suggests that deep down you might actually think you have a shot at winning. And of course you don’t. Your odds are statistically the same if you spend a dollar or a thousand.

    As for people blowing the money, you are right. A lot of the people who win come from a background that leaves them ill equipped to handle a sudden windfall and they don’t grasp that money, even large amounts of money, is finite. It does not self replicate and you can blow a hundred million dollars very easily if you start buying high priced items (planes yachts etc.). And of course it doesn’t help that in most states you are required to claim your prize in front of the press and media. That is an engraved invitation for all kinds of con artists and scoundrels to try and cheat you out of your money.

    Still I don’t think the FAIL rate is as high as some have claimed. The really spectacular failures tend to get all of the publicity while the ones who manage to keep at least one foot firmly planted in reality and cope with their new found wealth usually avoid the limelight.

    Just for the record I didn’t win anything on my $1 ticket. But a friend who spent $5 won $7. She hasn’t decided if she is taking that as a lump sum or opting for the annuity. I told her to go with the lump sum. The Mayans were pretty sure the world is going to end this year.

  2. I hope your friend doesn’t have to pay taxes on her two dollars of winnings.

    As you said, if you want to be part of the mania, just spend a buck and buy a ticket for cheap entertainment and leave it at that.

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