Last month, a convenience store in Chicopee, Mass., sold the only winning ticket for a $758.7 million Powerball jackpot. As is common when the jackpot exceeds $250 million, lottery sales ballooned all over the country as bettors lined up for their chance at the second largest lottery prize in U.S. history.
Powerball frenzies inevitably inspire commentary condemning the United States’ unhealthy lottery habit. Some critics blame lotteries for destroying the value of hard work, while others use high lottery sales among poor players to justify calls for cuts in welfare spending, arguing that poor gamblers waste taxpayers’ hard-earned dollars on lottery tickets.
These criticisms condemn the nation’s 85 million weekly lottery players as irresponsible, irrational people who gamble because of the magical belief that they will overcome infinitesimal odds to secure a life of luxury. In doing so, critics preserve the adage that lotteries represent a “stupid tax” or a “tax on people who are bad at math.”
What these indictments ignore, however, is that magical economic thinking by taxpayers and policymakers is precisely the reason lotteries are nearly ubiquitous in the United States.
Like lottery players, taxpayers and policymakers turned to lotteries hoping for a financial miracle. Between 1964 and 2013, 44 states enacted lotteries because voters refused to confront the conflict between their demands for tax breaks and their expectations of continued government services. Lotteries spread because they appeared to offer something for nothing, allowing states to provide public services without forcing taxpayers to pay for them.
Even as evidence emerged that lotteries were not magic budgetary bullets, states kept enacting them to avoid the painful choice between programs and low taxes.
The first wave of state-run lotteries passed in the Northeast in the 1960s and 1970s. Facing budget crises related to the slowdown of postwar prosperity, public officials turned to lotteries as an innovative, simple solution to complex financial problems.
Gambling proponents were hardly modest about their revenue expectations. They imagined lotteries not merely as supplemental sources of income but as massive funding mechanisms that could single-handedly balance a state’s budget. New Jersey congressman Cornelius Gallagher wrote in 1969 that if the Garden State enacted a lottery “we could abandon all taxation in New Jersey and increase every service in our state four times over.” Voters agreed with him and bet on the possibility that state spending could expand without their tax dollars. The New Jersey lottery referendum won by a larger margin of votes than any ballot proposal in state history.
By 1978, lotteries had spread to 14 states, though it quickly became clear that they were not the panacea that Gallagher and others had envisioned. In most states, lotteries accounted for approximately 2 to 3 percent of total revenue, a reliable, but ultimately small, source of income. States like New Jersey had passed lotteries in an effort to stave off tax increases but were ultimately forced to raise taxes anyway when gambling revenue fell short of the hyperbolic, unrealistic expectations that had facilitated lottery legalization.
Then, in the early 1980s, Scientific Games, the inventor of the scratch-off lottery ticket, sought to salvage the tarnished reputation of state lotteries. The company labored to create the perception of grass roots support for gambling by hiring lobbyists, drafting company-friendly legislation, paying signature gatherers and sponsoring pro-lottery advertising with the aim of winning lucrative state contracts.
This time, rather than promising that a lottery could single-handedly balance the state budget, Scientific Games tied the lottery to a particular cause — education in California, for example — and promised a windfall for this specific program.
The company’s message resonated with voters, especially because of the economic aftermath of the late 1970s tax revolt. Amid a nationwide recession, voters supported legislation that drastically reduced their property taxes, a choice that seemed to signal their desire for small government.
However, these rebels wanted lower taxes without reductions in state services. Voters maintained that, through cuts to state bureaucracy, they could pay less for the same government services. For example, on the eve of the seminal 1978 vote on California’s Proposition 13, 50 percent of voters believed the state government could provide the same level of services with a 25 percent budget cut.
After states inevitably began reducing services in the early 1980s, voters who had fallen for the cheap and easy promises of the tax revolt proved susceptible to another fiscal cure-all. Scientific Games claimed that the lottery represented a quick and painless salve to the recent budget cuts, promising to restore state spending without restoring high taxes. In 1980, an anti-lottery D.C. Council member chastised Scientific Games for “playing up the city’s financial crisis” by dangling the prospect of painless funding for police and fire services.
Nonetheless, voters and state officials bought Scientific Games’ economic elixir. After the company facilitated the passage of lottery legislation in six states and the District in the early 1980s, other states began enacting lotteries on their own in the hopes of cashing in on the revenue craze. By 1989, 74 percent of the American population lived in a state with a lottery and annual sales reached approximately $20 billion per year.
This type of thinking endured into the 1990s as states began tying lottery revenue not merely to education budgets but to scholarships for individual students. Starting with the HOPE Scholarship in Georgia, states used free tuition at in-state universities as a carrot to build support for lotteries. Gov. Zell Miller framed the Georgia lottery as a panacea for middle-class taxpayers whose education could be funded entirely by gambling revenue.
While the scholarships helped lotteries spread throughout the South in the 1990s and early 2000s, these states have not seen significant improvement in their education rankings over the last two decades. Instead, the lottery has redistributed money from poor gamblers to high-achieving middle- and upper-class students.
Despite their role in increasing economic inequality, lotteries remain remarkably popular in the United States, as millions of players believe in the distant chance that a lucky gamble will change their life. In 2014, annual sales reached over $70 billion, and Americans spent more on lottery tickets per year than they spent on books, sports tickets, music, video games and movie tickets combined.
The United States has a lottery problem, but it runs much deeper than players duped by a “stupid tax.” Public officials need to address the nation’s lottery addiction. When they do so, however, they need to consider not only the root causes of lotteries’ popularity — for example, declining access to social mobility and the concentration of lottery outlets in poor neighborhoods — but also the beliefs about taxes and state revenue that ushered in lottery legislation in the first place.
If citizens want government services, they have to make sacrifices to pay for them. Garnering state revenue from gambling may have been a fruitful experiment in the 1960s, but it has unambiguously failed in its promise, a promise built on fiscal alchemy rather than budgetary reality.