National Lottery Is Not the Solution to National Debt
December 4, 2006
Newly elected Tennessee Congressman Steve Cohen, the author of Tennessee’s lottery legislation, is pondering a possible solution to the national debt: a national lottery. From the Memphis Commercial Appeal:
Cohen, the prime mover behind the Tennessee State Lottery, says he’s thinking about working on the national debt with a national lottery bill.
“I know that the state lottery’s against it, but I think a national lottery to pay off the national debt would be a good thing. … Debt is a serious problem. A national lottery could help.”
Cohen is not the first legislator to propose a national lottery. The federal government has already made two unsuccessful forays into the lottery business: a $10 million lottery approved by the Continental Congress to help fund the American Revolution (the lottery was abandoned when the tickets were not all sold) and a series of lotteries passed by Congress between 1792 and 1842 to improve roads and infrastructure in Washington, DC. Tickets sold well, but the agents conducting the lottery absconded with the proceeds.
There have also been numerous proposals for federal lotteries. During a 70-year period of state-level lottery prohibition, from 1894 to 1964, a group of philanthropists founded the National Conference for Legalizing Lotteries to support enactment of state and federal lotteries to fund hospitals and other charitable causes. During the Great Depression legislators submitted proposals for lotteries at the state and federal levels to fund unemployment relief, and during World War I, members of Congress introduced lottery bills to help cover the costs of the war, among other things.
These pro-lottery legislators may see lotteries as a “voluntary” way to reduce the debt or support other worthy programs, but they fail to understand the true nature of government-run lotteries. As we’ve written before (here, here and here), lottery revenue is tax revenue. Although the purchase of a lottery ticket is indeed voluntary, the portion of the ticket price that ends up in state coffers—the implicit tax—is not voluntary for anyone who purchases a ticket.
The implicit tax on lotteries is poorly designed: it is regressive; it lacks transparency; it is not economically neutral; and earmarked funds are fungible.
Legislators looking for ways to reduce the debt should stick to cutting spending or, if they insist on raising taxes, they should focus on taxes that are transparent, simple, and economically neutral. Creating a national lottery would only exacerbate the problems that already exist at the state level.
For more on the tax policy implications of government-run lotteries, see our Lottery and Gambling Taxes section.