The N&R opines today that the lottery is a tax, contrary to the recent court ruling that removed the last hurdle to state-sponsored gambling in North Carolina. Doug Clark wrote the same thing at his blog.

But the lottery is not a tax. It is a means of raising revenue and thus perhaps subject to some of the same state laws governing taxes, but it is not a tax any more than a duck is a goose.

If the state sells off surplus property, it gets the money, but that's not a tax. Same deal here. The state is selling something, not taxing something.

I have mixed feelings about the NC lottery. I did not support it, although I think that the money we were bleeding into neighboring states once they got lotteries made it inevitable. I wish the cash-flow was better structured. And I didn't like the rush-job passage of the bill by the Democrats, or the phony outrage from GOP Senators who could have killed it if they had wanted to by using the tradition of paired voting in the Senate.

But it's not a tax.

Comments

[Dave]

My thoughts on the lottery have changed over time. I was a strong supporter of it in Georgia in the early 90's. At the time, I was working on the assumption that people were basically numerate and understood what they were doing with it. I've since seen examples of the contrary, such as the shirt tail relation who spent $40,000 on it in hopes of really making it big.

I don't like it now because it is false hope, and it preys on the vulnerable and innumerate. People play it as if it's a pension plan, when they are doing the exact opposite. I'd rather see people put that money into making something happen for themselves. We've been saving our asses off for the last few years, and suddenly we have so many more choices than we used to in this life.

I do actually believe it does kind of have the structure of a really regressive psuedo-tax - rich people don't need to play it, people who understand the odds don't want to play it beyond the buck or three a week level if that. Only the people who are desperate for better lives and don't understand math pay in significantly. It's not compulsory, but having at one point been broke off my ass and wanted better I can understand with the appeal of it. If you believe it is your only possible ticket, then you play. People with options tend to not really believe what it's like to not have many.

[Ed Cone]

Well said, Dave.

[David Boyd]

If the state sells off surplus property, it gets the money, but that's not a tax. Same deal here. The state is selling something, not taxing something.

The analogy only holds if the surplus property being sold is guaranteed to be sold at a 100% more than what it's worth given that with the lottery there's only a 50% payout in prizes.

What is the 50% the state keeps other than sales tax?

[Ed Cone]

The 50% to the state is the proceeds of the sale after expenses.

The item being sold is the slim chance at winning money.

The payout on the slim chance is the expense to the state of the transaction.

The revenue to the state is the sale price minus that expense of doing business.

The state has entered the lottery business. It is a revenue-raiser. But it is not a tax.

[matt]

While I dislike the lottery, I agree it's not a tax.

A tax is mandatory, buying a lottery ticket is not.
People should get that through their thick skulls.

It may be improperly designed and flat out corrupt, but it's no tax.

[Jim Caserta]

What about excise taxes - alcohol, cigarette taxes? Those are not required, yet they are still considered taxes. What if there were an independent entity selling the tickets, they took maybe 5 cents on the dollar, and paid 50 cents on the dollar to the government, and paid out the other 45 cents to the winners. Would the 50 cents then be a tax? Isn't that how the lottery is going to work here?

[PotatoStew]

I was with you until Boyd's comment, but he raises a good point. I think the way to look at it is this: The lottery is not a tax, but the lottery is taxed. Jim's example of alcohol and cigarette taxes seems to be a good one, the main difference being that with the lottery, the primary purpose of selling the product is to collect that tax. If the state didn't get that cut, they certainly wouldn't be selling the product.

[Jon Lowder]

I agree with Ed that it isn't a tax and with the rest that if anything the revenue is similar to sales tax revenue. And I also agree with Dave's assessment of the impact on the innumerate...very well said.

Over at Boyd's blog I put forward this argument:

What if we had a state-sanctioned poker game and poor people played it more than others; would we call it a regressive tax or gambling?

Maybe to make it a less regressive "tax" the state could open a casino for high rollers only and then take a house cut (tax). Poor people couldn't play and it would be the most progressive "tax" ever. Oh wait, then the state would face a discrimination lawsuit supposedly brought on behalf of the poor people who have been prevented from playing for their own protection. The lawsuit would enrich the lawyers and put about $2 in every poor persons pocket which they could put towards their lottery "tax".

I'd say that all the energy and resources being used to fight the lottery would be better used in an educational campaign to help the innumerate among us understand the folly of hoping for the big hit.

[Connie Mack Jr]

It is not a Tax* Ed

Congrats! It appears that you understood Econ 101 like me. You get a A and I get a C for being stupid enough to think Duke would make it into the final four.
Judge Orr gets a F for being stupid enough to think he had a case?

Doug gets a F for being stupid enough to believe Judge Orr was a sharp loophole lawyer who would over come all odds on the term " Tax"

[PotatoStew]

I've posted more thoughts on the lottery, and a better alternative here.