Lottery Revenues and Taxes – Is it Possible for States to Make a Profit From the Lottery?


As anyone who has ever played a lottery can tell you, the idea of winning is incredibly appealing. We all fantasize about what we would do with millions of dollars. For some, it’s immediate spending sprees, fancy cars, luxury vacations and the like; for others it would mean paying off mortgages or student loans, changing their financial situation in a meaningful way.

But the reality is that most people who purchase tickets aren’t actually winning any money. Their money is simply added to the prize pool for the next drawing. And even if they do win, they’d have to split the jackpot with anyone else who had the same numbers as them.

Lottery officials know this and still promote the idea that buying a ticket is a low-risk investment with potentially huge rewards. In fact, a Harvard statistics professor recently pointed out that lottery players are contributing billions to government receipts—money that they could be saving for retirement or their kids’ college tuitions.

In most states, the lottery has become a major source of income, generating revenues for many services that are already heavily taxed. But a key question is whether it’s possible for the state to make a profit without creating an unsustainable dependency on these revenues. In the post-World War II era, many states expanded their social safety nets with the idea that they could eliminate taxes altogether by making up for it with the lottery. But that model is starting to break down.

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