Who Really Wins the Indiana Lottery?

August 7, 2009

Last month the Hoosier Lottery began its 20th-anniverary celebration, which continues through the end of the year. The lottery’s website proclaims a celebration of “twenty great years of winners,” including “our players, our retailers and the citizens of Indiana.” Lottery revenue in Indiana has been used to help fund retired firefighters’, police officers’ and teachers’ pension plans, and to lower license plate costs, although earmarked revenue is fungible, so it’s hard to say how much the lottery has really helped these programs.

Of course, from a tax policy standpoint, no one wins with a lottery: they represent poor tax policy. Now there are new doubts about whether the citizens of Indiana should be celebrating the lottery’s birthday. From the Indianapolis Star:

It is widely agreed by experts that the poor disproportionately play the lottery, a contention supported by surveys and studies.

“Every bit of credible evidence I have ever seen shows that,” said Duke University Professor Charles Clotfelter.

That includes a marketing survey for the Hoosier Lottery in 2005 that concluded 67 percent of lottery players have household incomes of less than $50,000, compared with 58 percent of the general population.

. . .

Through public records requests, The Indianapolis Star obtained and analyzed sales and address data for 2007 and 2008 from every Hoosier Lottery retailer and compared them with income data from the state’s census tracts.

In three median household income groups—less than $50,000; $50,000 to $74,999; and $75,000 or more—the lower an area’s income, the more lottery retailers it has per capita.

Retailers in areas with less than $50,000 in median household income sold the most lottery tickets per resident older than 18, a median of $359 for the two years measured. That’s more than $100 higher than the figure for both of the other income groups.

. . .

The Star analyzed three Hoosier Lottery advertising campaigns in 2007 and 2008 in Marion County, using billboard locations obtained through public records.

The analysis showed the billboards were placed predominantly in lower-income areas.

This news is not surprising, as studies in other states have reached similar conclusions, including one in New Jersey that accounted for daytime populations in certain zip codes. Making matters even worse in Indiana, however, is this finding:

An Indianapolis Star review of the Hoosier Lottery has found that while lower-income players disproportionately fund the lottery, the state transfers lottery profits disproportionately to the wealthiest counties.

. . .

The inequity is caused by the formula used by the state. … [T]he bulk of the money is returned to local government based on the assessed value of motor vehicles in the county. In other words, the more valuable the cars, boats and RVs in your county, the more money you receive.

It wasn’t always this way. In 1996, amid howling over the rising costs of vehicle registration and licensing fees, the legislature cut the auto excise fee in half.

But to make up for that lost revenue, the state decided to primarily use lottery and other gambling funds and changed the formula. So, in essence, lottery players—who trend toward lower-income—subsidize luxury car, boat and RV owners, who received the biggest benefit from the reduced auto excise taxes.

Similarly, lottery critics have charged that states with lottery-funded college scholarships transfer money from disproportionately lower-income lottery players to middle-income college students. Any state that brags about the use of its lottery proceeds should examine not only the makeup of its lottery players, but also the composition of the alleged beneficiaries. Indiana may be celebrating “twenty great years of winners” this month, but some Hoosiers are winning more than others, without ever buying a lottery ticket.

More on taxes in Indiana and state-run lotteries.


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