As mentioned in a previous post, reconciling a budget gap for public education is difficult. While legislators were considering ending the Texas Lottery in 2013, they presented two alternatives to fill the $2.2 billion gap in revenue: 1. Cutting the public education budget or 2. Raising taxes. Since neither was politically appealing, the House turned down these alternatives and kept the Texas Lottery.
Authorizing lotteries is one way states avoid tax hikes; however, research indicates that lotteries overly affect lower-income and less-educated individuals.
In an article by Elizabeth McAuliffe, she states that “While participation is voluntary, the lottery is a tax in most senses of the term. Lotteries, in fact, do not provide free money. They are redistributive, transferring funds from those who purchase tickets to the state and to a few winning players. Thus, lotteries are, in effect, a form of regressive tax. Like the sales taxes, they collect a flat percentage from all sales. People at low and high-income levels purchasing the same number of lottery tickets are disproportionately affected. The same raw amount is transferred to the state, but a higher percentage of the low-income person’s wealth is reduced.”
In another paper, Donald Price, an economics professor at Lamar University, studies whether a lottery disproportionately takes money from the poor – known as a regressive form of raising revenue. He concludes that lotteries are regressive in nature. Numerous other studies derive similar conclusions that can be summarized simply as: lotteries prey on the poor and less educated.
McAuliffe says, “It is clear the lottery’s demographic is skewed toward minorities, the less educated, and the poverty-stricken – those with the least ability to pay for lottery tickets.” In other words, low-income people spend a greater percentage of their income on lottery tickets than those with higher incomes because they perceive greater economic benefits. While purchasing lottery tickets may be entertainment for some people, for others it is a get rich quick scheme.
Despite the regressive nature of lotteries, unless the state government produces other alternatives for generating revenue for public education, the Texas Lottery will be around for years to come.
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