Woman Embezzles Millions to Pay Lottery Taxes

August 25, 2006

There are many reasons to oppose state-run lotteries, and a recent news story reminds us that perhaps state governments should not be using gambling revenue to fill state coffers.

From the New York Daily News:

A Long Island mom blew up to $6,000 a day on lottery tickets – an out-of-control addiction she fueled by embezzling $2.3 million from her bosses, authorities said yesterday.

By day, Annie Donnelly, 38, a bookkeeper and mother of three from Farmingville, wrote checks to herself and for cash at her medical office job.

By night, she would buy huge strips of $10 and $20 scratch-off tickets and thousands of dollars in lottery tickets on her way home – usually stopping at the same shop.

Donnelly, who has been behind bars since her arrest in June, pleaded guilty yesterday to grand larceny charges. She faces four to 12 years in prison when she is sentenced on Sept. 20.

The tax policy aspect of this story may not be immediately evident, but we must remember that the lottery is actually a source of implicit tax revenue. About a third of the woman’s lottery purchases, or over $700,000, was kept by New York State to support government programs.

How many other taxes involve embezzlement and gambling addictions? Of course states tax privately run casinos, but lotteries are run by the state and only the state.

Sensationalistic news stories like this may distract people from the tax policy problems inherent in state-run lotteries; tax policy may seem uninteresting to some compared to stories of embezzlement, imprisonment and addiction. But stories like this one should be a reminder not only of the fundamental differences between lotteries and other types of tax revenue, but also of the tax policy problems caused by states running lotteries as a source of tax revenue—problems that include regressivity, lack of economic neutrality and lack of transparency. All taxpayers—not just a few who develop gambling problems—are worse off due to the tax policy problems of lotteries.

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