An Alternative to the Lottery (Tax)
By Anthony | March 24th, 2006 | 1:17 amEd Cone takes issue with those who would call North Carolina’s lottery a “tax”. I agree that it’s not a tax, however I do think it is appropriate to say that the lottery is taxed. As David Boyd points out, “What is the 50% the state keeps other than sales tax?”
Jim Caserta furthers this point by saying:
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?
This seems to be an apt analogy, 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, you can bet they wouldn’t be selling the product.
So while it’s inaccurate to call the lottery itself a tax, I do think it’s accurate to say that lottery ticket buyers will be paying a tax; furthermore, I’d wager that folks with lower incomes are going to be the ones making the heaviest contributions to that tax.
Though people are certainly responsible for their own purchasing decisions, this doesn’t seem like an optimal solution for raising more revenue. Interestingly, a potentially better solution has been right in front of Governor Easley: Poker.
The Cherokee tribe in Western North Carolina has been trying for a year to convince the state to allow table games such as poker in their casino. Negotiations between the tribe and Easley have focused on what sort of cut the state would receive, but as of February, Easley’s answer was “no deal”.
Ignoring for a moment the apparent hypocrisy of rejecting live poker while allowing a lottery, it seems to me that allowing poker would provide a source of gambling revenue for the state that would avoid the drawbacks of the lottery. As has been widely pointed out, the people who can least afford lottery tickets are the ones who purchase them the most. Tickets will be widely available. A trip to the gas station, convenience store, or any number of local establishments will bring you within scratching distance of a lottery ticket. As often as not, ticket sales will be taking place right in low income neighborhoods.
Poker on the other hand, while still providing the potential for substantial revenue, will not be as much of a draw for lower income North Carolinians. The cost of entry is higher. One needs to be able to afford the time and money to travel to the casino in Cherokee, and in many cases players will need to be able to afford lodging once there. The cost of a buy in to a poker game is typically at least $30 or more – quite a bit higher than the single dollar that a lottery ticket costs. These factors mean that for the most part, the people playing poker, and thereby contributing to the state’s “tax” on it, are people who can more easily afford it.
This shift in the demographics when comparing casino gamblers to lottery players is supported by a survey taken by Harrah’s in 2003:
— The median household income of casino gamblers – $50,716 – is more than 20 percent higher than that of the overall U.S. population – $42,228.
— Americans in upper income brackets have the highest casino gambling participation rates (percentage of adults who gambled at least once in a casino in the last 12 months) and those in the lowest income brackets have the lowest rates. More than a third – 34 percent – of individuals with annual household incomes in excess of $95,000 gambled in a casino in 2002, while only 21 percent of those with annual incomes of less than $35,000 gambled in a casino.
— Casino players are more likely than non-gamblers – 46 percent versus 41 percent – to hold white-collar jobs.
Additionally, live poker at the casino in Cherokee would be a huge draw for out of state tourists. Unlike the lottery, which can be played in other nearby states, the nearest places to play casino poker are as far away as Mississippi and New Jersey. No one is going to travel to North Carolina to play the lottery; many people in surrounding states would travel here for live casino poker.
At any rate, it’s too late to do anything about the lottery, other than stand in line to buy a ticket. But next time Easley needs a quick revenue fix, maybe he’ll consider letting middle- and upper-income North Carolinians ante up at a poker table.
March 24th, 2006 at 11:32 am
It is hypocritical for the state to sanction its own gambling and to outlaw private gambling. You make a very good argument for poker. The same could be made for horce racing–another endeavor shot down by the state. Gambling where people are wagering against each other rather than against odds that favor the house seem fairer too.
March 24th, 2006 at 1:31 pm
You’re absolutely right. That’s one point I left out for the sake of keeping the article focused – all the gambling games that the state allows are essentially sucker bets. You might get lucky and win occasionally, but mathematically speaking you will be guaranteed to lose money over the long haul. Poker is different. The house takes a cut, but as long as you can play better than the other people at your table, it actually is possible to make up for that and to consistently come out ahead over the long haul.
True, most people won’t be good enough at the game to actually acheive this, but at least it’s possible, unlike video poker and the lottery.
March 25th, 2006 at 5:58 pm
You both have very good points in favor of poker and horse racing but for one very important factor from the state’s point of view: neither have the mass appeal of a lottery due to the low cost and accessibility and therefore make the most money for the state coffers.
March 25th, 2006 at 7:00 pm
Good point Brenda. If it ever did somehow come down to an either-or choice, I’m sure the state would still choose the lottery for that very reason.
March 25th, 2006 at 7:40 pm
Sorry didn’t mean to post yet since I wasn’t finished. The bread was ready to take out of the oven and had to run. So to continue:
As to whether or not the lottery is a tax or not is not a viable issue to argue since it is, and it is not, a tax, and can be argued either way. No! it is not a tax in that when the individual buys the lottery ticket he is not presented with a tax bill and neither is it stated anywhere that a certain amount of the purchase price is a tax. However the state does receive it’s 50% of the cost of that ticket be it call a tax, a donation, a fee or a gift. Yes! it is a tax because North Carolina taxes income and lottery winnings (which is a portion of the purchase price of the ticket) are considered income so not only is the IRS standing in the wings to dun the lucky soul their fair share of his millions, but next in line with their hand out is North Carolina’s Department of Revenue.