Lotteries Don’t Keep Taxes Low April 13, 2006 Alicia Hansen Alicia Hansen Many people believe lotteries help state governments keep taxes low. They’re wrong on two counts. First, as we’ve written before (here and here), the lottery itself is a tax. No state or federal government classifies lottery revenue as tax revenue, but they should. (Our Tax Freedom Day calculations, as well as our calculations of state and local tax burdens, rely on government definitions of tax and income from the Bureau of Economic Analysis (BEA), and since the BEA does not consider lottery revenue to be tax revenue, our calculations of Tax Freedom Day and state and local tax burdens also do not include lottery revenue.) Second, states without lotteries tend to have lower state and local tax burdens than states with lotteries. As our recently released Tax Freedom Day report shows, of the eight states without lotteries, seven have state and local tax burdens below the U.S. average of 10.6%. State and Local Tax Burdens in States Without Lotteries, Calendar Year 2006 State Tax Burden as a Percentage of Income Tax Burden Rank United States 0.106 — Alaska 0.066 50 Alabama 0.088 46 Nevada 0.095 43 Wyoming 0.101 33 Mississippi 0.102 29 Arkansas 0.103 27 Utah 0.105 22 Hawaii 0.117 5 Meanwhile, states that enacted lotteries the earliest—in the 1960s and 1970s—tend to have higher-than-average state and local tax burdens. Of the ten earliest states to enact lotteries, only three have tax burdens below the national average. Maine and New York, two of the earliest lottery states, have the first and second highest state and local tax burdens in the country. State and Local Tax Burdens in the First Ten States to Enact Lotteries, Calendar Year 2006 State Tax Burden as a Percentage of Income Tax Burden Rank Year Lottery Started United States 0.106 — — Maine 0.135 1 1974 New York 0.129 2 1867 Rhode Island 0.115 8 1974 Connecticut 0.113 9 1972 Michigan 0.108 16 1972 New Jersey 0.108 17 1970 Maryland 0.107 19 1973 Pennsylvania 0.104 24 1972 Massachusetts 0.103 28 1972 New Hampshire 0.073 49 1964 Legislators and voters looking for a way to keep state taxes low should consider the tried and true methods: fiscal discipline, spending cuts and low tax rates—not lotteries. Read the full Tax Freedom Day study here. Stay informed on the tax policies impacting you. Subscribe to get insights from our trusted experts delivered straight to your inbox. Subscribe Share Tweet Share Email Topics Center for State Tax Policy Tags Lottery and Gambling Taxes
