Do Taxpayers Benefit from Lotteries?

March 22, 2007

An article on the Maryland Lottery appeared on the Lottery Post Web site today. The article discusses recent lottery winners, the state’s largest win, and the amount of money raised by the lottery:

Last fiscal year, the Maryland Lottery generated more than $501 million for the state’s general fund. These earnings benefited government-funded services and programs such as education, public health, human resources and public safety.

There is nothing unusual about this article, other than the title: “Maryland Lottery helps taxpayers hit jackpot.”

Would any news outlet publish an article with the title, “Sales tax helps taxpayers hit jackpot?” How about, “State income tax provides windfall for Maryland taxpayers”? Not likely.

The logic (or lack thereof) behind this headline is that lottery tickets are purchased voluntarily, and therefore lottery revenue is not tax revenue; rather, it helps taxpayers by allowing the state to keep rates of “real” taxes lower.

The problem with this argument is that although a lottery ticket is a voluntary purchase, the portion of the ticket price that the state keeps (32 percent in Maryland in FY 2006) is not voluntary. Once a consumer decides to buy a lottery ticket, she must pay the full ticket price. It works the same way with books, wine, or tobacco. When someone buys a bottle of wine, that purchase is entirely voluntary, but the excise tax portion of the price is not optional. A consumer making a voluntary purchase must pay the entire price of the item, taxes and all.

Lottery revenue does not simply materialize out of thin air, as the above article seems to imply; in order for the state to profit from a lottery, people must purchase lottery tickets, and those people (who are disproportionately low-income) will have a little less money in their wallets afterward. Many of the taxpayers who “hit the jackpot” by benefiting from state-provided services have already lost a considerable amount of money playing the lottery.

While state governments do not label their portion of lottery revenue a tax, they should. Once the revenue is collected, it is used to fund state programs that are unrelated to the provision of lotteries. It works just like an excise tax.

Marylanders who do not purchase lottery tickets may benefit from others’ ticket purchases, just as those who don’t buy wine benefit from the excise taxes paid by wine drinkers. But the only Marylanders who “hit the jackpot” on the state lottery are the few who actually win large sums of money. For everyone else, the lottery is a tax like any other.

Was this page helpful to you?


Thank You!

The Tax Foundation works hard to provide insightful tax policy analysis. Our work depends on support from members of the public like you. Would you consider contributing to our work?

Contribute to the Tax Foundation

Related Articles