With Americans spending upwards of $100 billion a year on lottery tickets, the state games are now a fixture in American society. Many people think of it as a harmless way to spend money. But what most don’t realize is that the lottery is a big business, and it comes at an immense cost to taxpayers and families. State lotteries are not just another form of gambling, they’re also a hidden tax. The money that is raised through these games goes toward everything from roads and schools to police forces and even prisons. But just how much these taxes pay off and what they cost us is a complex issue.
The history of the lottery in America is a long and complicated one. In colonial era America, the game was used to finance private and public projects. For example, a lottery in 1612 raised money to help the Virginia Company of London buy ships to establish the first English colonies. During the Revolutionary War, Benjamin Franklin ran a lottery to fund his militia. Lotteries were also used to help build churches, libraries and colleges. John Hancock held a lottery to help build Boston’s Faneuil Hall, and George Washington sponsored one to raise funds for a road over the Blue Ridge Mountains.
In the 1800s, a rising tide of religious and moral sentiment began to turn against gambling of all kinds. This was partially because of religious and moral concerns, but it was also motivated by a concern over corruption. Denmark Vesey, an enslaved man in Charleston, South Carolina, won a local lottery and used it to buy his freedom. Lottery organizers could be dishonest and abscond with the profits, leaving behind a prize for nobody.
State governments in the immediate post-World War II period were able to expand their social safety nets without raising taxes too steeply. So they turned to the lottery as a source of revenue, with the belief that it was a fair trade off. In some states, there was a direct correlation between lottery revenue and state spending on education and health care.
In other states, the amount of money that went to education and health care dropped, even as lottery revenue rose. This was because the higher taxes meant fewer people played, which in turn reduced the overall pool of prize money. As a result, states began to focus on advertising and marketing to attract new players, and they shifted the emphasis from prizes to money for education.
Currently, lottery revenues are divvied up differently by each state, with determinations made by the legislatures. But roughly 50%-60% of all ticket sales go into the prize pot, with the remainder being divvied up between administrative costs and vendor fees, plus toward whatever other programs are designated.
Those who play the lottery tend to have all sorts of “quote-unquote” systems that they use to pick numbers, such as lucky stores and times to buy tickets. And while some of these systems are irrational, most people are clear about what they’re doing when they buy a ticket: They’re putting their money into a game with bad odds, in the hope that it will improve their lives.