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FY2011 Data Shows Record Profits for Many State-Run Lotteries

3 min readBy: Alicia Hansen

After a slight drop in FY2009 and an increase in FY2010, lottery revenue continues to rise in many states, according to newly released FY2011 data.

From Lottery Post:

Government-sponsored lotteries are continuing their broad expansion as income-producing entities, as many lotteries reported record profits in the last fiscal year.

Reports of record profits from the lotteries come despite continuing high unemployment and an economy that has been flat or downward-trending for the past two years.

In Pennsylvania, more people are purchasing lottery tickets than ever, as Lottery officials announced that sales for the year were $3.2 billion, up $142.2 million from last fiscal year and $118.7 million higher than the previous all-time record set in four years ago.

The Pennsylvania Lottery expanded its retailer base by more than 500 locations last year, ending the year with more than 9,000 retailers … .

Records were also smashed in Idaho this year, with $37 million in profits turned over to the state—the most since the Idaho Lottery started in 1989.

In Delaware, the lottery set a new profit record during the past fiscal year, with a contribution of $287 million to the State General Fund. This amount represents an $11.5 million, or 4% increase over the previous fiscal year.

To proponents and players of state-run lotteries, this may seem like cause for celebration, especially for anyone who agrees with the following excerpt from the above Lottery Post article:

Idaho Gov. C. L. “Butch” Otter welcomed the payout, saying every dollar that the lottery contributes is a dollar that doesn’t have to come from taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. payers [emphasis added].

That statement sums up the fallacy at the heart of most arguments for state-run lotteries: the misconception that since playing the lottery is voluntary, lottery revenue cannot be tax revenue. Proponents of this argument confuse the purchase of a lottery ticket (voluntary) with the payment of the implicit tax on the ticket (mandatory). If you buy cigarettes, alcohol, clothing, books, or just about any consumer good, your decision to purchase the product is voluntary, but once you have purchased it, you must pay the tax. Sales and excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. es are compulsory on voluntary purchases.

When a policymaker understands that the lottery is just another tax with better marketing, he or she can begin to evaluate the lottery the same way other taxes are judged. State-run lotteries fail the tests of sound tax policy in multiple ways: They are not economically neutral; they are not simple to administer; and they are not transparent.

The tax system should be as clear and simple as possible; taxpayers should understand what is being taxed and what the rates are. The lottery tax, however, is hidden. The state creates a monopoly for itself and builds the tax into the price of the tickets, then advertises the lottery as a recreational activity rather than a revenue-raising activity.

If more people understood the true nature of state-run lotteries, perhaps the news of record-breaking profits would be greeted with dismay rather than celebration. Legislators who are determined to raise money through gambling should consider allowing privately run lotteries, just as many states permit privately run casinos. They could then levy sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. es and possibly excise taxes on the privately run lotteries.

More on state-run lotteries.