A 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. increase went into effect yesterday in Oklahoma, and people are celebrating. All across the state, jubilant Oklahomans are lining up to begin paying the new tax. The governor even bestowed upon Oklahoma’s Teacher of the Year the honor of paying the first few cents.
It seems odd for taxpayers to celebrate a new tax, doesn’t it? Perhaps we should mention that the new tax is actually a state-run lottery. Oklahoma has just joined the District of Columbia and 40 other states that raise implicit taxes through lotteries.
The lottery is projected to generate $219 million in sales in FY2006, 30% of which will go into state coffers (35% after the first two years). This means the lottery will raise $65 million in tax revenue for the state, although Oklahoma, like other states, will refuse to acknowledge that its lottery proceeds are actually tax revenue.
The implicit tax rate on Oklahoma’s lottery tickets is a staggering 43% and will rise to 54% after the first two years. If revenue estimates are correct, every Oklahoman will pay $18 in lottery tax in FY2006.
Proceeds will allegedly benefit public education. However, other states have found that lotteries for education often do not live up to their promises; legislators can shuffle funds, knowing that lottery money will fill in any gaps in the education budget. Oklahoma has created a “lockbox” to prevent misallocation, but there is no practical way to safeguard the revenue.
Not everyone is celebrating—not the 35% of voters who rejected the lottery referendum last November, nor the public policy groups who vehemently oppose it. They worry that the lottery will take advantage of the poor, and they may have a point: the Lottery Commission planned to allow pawn shops, check-cashing businesses, and payday loan companies to sell tickets, until a groundswell of opposition forced them to reconsider-–the day before ticket sales began.
Many Oklahomans envision pots of gold for the schools–or for themselves if they beat the odds–but all a lottery really does is undermine the principles of sound tax policy. It makes taxes more complex, more regressive, less transparent, and less neutral.
Is that really worth celebrating?
Read more on state-run lotteries here.
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