The $80 Billion Voluntary Tax

Share This Insight

Brian Cochran

There’s a lot of chatter in the air about taxes as we approach April 15th. It seems that every day I see headlines with another radical tax proposal or comment about the “fairness” of different approaches to funding our government and social systems. Rather than dive into such a politically sensitive issue, I would rather look at a regressive and somehow uncontroversial form of tax: the lottery.

You may view lottery tickets as a harmless and inexpensive source of entertainment. That might be the case for someone with a comfortable income, generous savings and wiggle room in their monthly budget.

But what about lower-income households that struggle to make ends meet, but who account for the majority of lottery sales? A report by Bankrate found that low-income households spend an average of $412 per year on lottery tickets, compared to $105 per year spent by the highest-earning households. Can you imagine a politician proposing a tax bill in which those just scraping by had to pay nearly four times the tax rate as the wealthy?

Melissa Kearney, an economist at the University of Maryland, found disturbing trends related to lottery sales in lower-income and less educated populations, including decreased spending on necessities when lottery sales begin in a state. Our most vulnerable communities are sacrificing their basic needs to pay a voluntary tax in the form of legal gambling. Twenty-five of the 42 states with lotteries saw a rise in sales when incomes dropped during the recession. Why? Many low-income Americans feel the lottery is their only way to build wealth, which is a direct reflection of the inadequate financial literacy in our country.

It’s time for state and local governments to stop promoting a system that takes from our lowest income populations while compounding gambling addiction. Surely there is a better way to fund the programs that are supported by lottery sales. A way that lifts our communities, rather than continues to pull them down.

Any opinions are those of Brian Cochran and not necessarily those of Raymond James.

Subscribe for More Financial Insights

Never miss a post. Receive notifications by email whenever we post a new JMA Insight.