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Edited on Thu Dec-21-06 04:08 PM by The Sushi Bandit
Lottery supporters say it's paternalistic for opponents to talk about the way state governments take advantage of their poorest citizens when they run lotteries. So let's turn away from that argument for a moment. Let's take a purely economic look at lotteries.
Here's what various studies, from academians to major news organizations, have found:
* Lottery states raise taxes at a higher rate than non-lottery states.
* Lottery states increase spending on education at a lower rate than non-lottery states.
* Lottery revenue fluctuates more than regular tax revenue and eventually decreases, leaving deficits in programs funded by lotteries.
* It costs more money every year to raise a buck from a lottery.
* Lotteries create new costs for states, which have to contend with a small but significant number of people who become addicted to lottery gambling.
Pay particular attention to the point about higher taxes. Lottery supporters here present a lottery as the only way to increase education funding without raising taxes. That struck me as a patently absurd argument to begin with, given the hundreds of millions of dollars legislators have added to education funding in the last few years without raising a single tax. But a 1996 article in Money magazine, "Lotto Fever: We All Lose," demonstrated that it was even more absurd than I imagined.
The article reported: "What the estimated 55 million Americans who play the lottery at least once a month probably don't realize . . . is how big a rip-off the state-run games are for them as taxpayers. A six-month investigation by Money reveals that the lotteries have neither lowered taxes for their residents nor boosted funding for education, as their champions have often promised. What's more, by helping turn people . . . into compulsive gamblers, lotteries are adding an estimated $10.9 billion a year to the financial burdens of the states."
Specifically, Money found the following:
* Over the previous five years, average per capita taxes increased 21.7 percent in lottery states - nearly three times the growth in non-lottery states, 7.2 percent. That put the average lottery-state taxes at $1,401 and the average non-lottery state taxes at $1,049.
* Spending was projected to grow more than twice as fast that year in lottery states as non-lottery states, 3.7 percent compared to 1.46 percent.
* Taxes increased more often in lottery states than in non-lottery states. In the previous year, 25 percent of lottery states had raised taxes, compared to just 14 percent of non-lottery states.
"A lottery does not inoculate a state against higher taxes," the article said. "To the contrary, most states create lotteries because they need all the income they can possibly generate."
One of the main reasons for the higher taxes, the magazine found, is that "states typically treat lottery revenues as 'found money' that they use to close budget gaps rather than to cut taxes or spending."
The Center for the Study of the States found that in 1994, lottery states devoted 49 percent of their total spending to education, down from 50.1 percent in 1990. Non-lottery states increased their education spending from 58.2 percent to 58.9 percent in that same time.
More significantly, Saint Mary's College professors Donald Miller and Patrick Pierce found that while overall education spending increased in all 50 states from 1966 through 1990, the increases in lottery states - including lottery spending - was half what it was in non-lottery states. The initial boost of education funding that came from lotteries was wiped out by the seventh year, so that the total per capita spending was less in lottery states than in non-lottery states ($469 vs. $581).
"A more detailed look at the impact of education lotteries on educational spending reveals perhaps an even more perverse portrait," they write. "Immediately upon beginning the lottery, a state is likely to increase its educational spending. Furthermore, this increase is the nontrivial amount of nearly 50 dollars per capita, which is almost 10 percent of the mean value for educational spending over this time period ($555). Citizens (if attentive) would then infer that the lottery was a tremendous boon to education. Policy makers in good conscience could credit the lottery with enabling them to increase spending in education. However, both would be wrong. In the years following the initial use of the lottery, the rate of growth in educational spending declines. We should emphasize that spending does not decrease; rather, its rate of increase is cut in half. That is, spending increases at the rate of 6 dollars annually per capita rather than 12 dollars per capita."
Then there's the question of stability. In the past year alone, sales dropped in 12 of the 38 U.S. lotteries.
By CINDI ROSS SCOPPE:
More significantly, the amount of money the lottery gave to governments dropped in 16 states. In other words, even when lotteries are able to take in more money, they give the state less, because they have to pay larger prizes to keep people playing.
It's a long-term trend. In the 1970s, when there were few lotteries, state gambling returned 43 percent of the money to the states. Increased competition has forced up payouts and reduced the states' take to 30 percent.
John Hill, senior policy analyst with the Alabama Policy Institute, analyzed lottery revenues from 1964 to 1998. He controlled for the effect of 20 factors, from per capita income and race to population density, the nearness of other states with lotteries and the wealth of adjacent states. Even controlling for all those factors, he found that lottery revenue, when adjusted for inflation, declines over time.
"Even though states are marketing more aggressively and introducing new games, there's still a slight negative relationship," Dr. Hill told me. "I think if we asked this question five years from now, the relationship would be much more pronounced" because lottery revenues have become more unstable in the last two years, which he did not analyze.
So forget about the poor, if you're so inclined. For all of us - and particularly for our schoolchildren - a lottery is a net loss.
Ms. Scoppe can be reached at cscoppe@thestate.com or at (803) 771-8571.
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