The Lottery – A History of Taxation and Government Spending

In the United States, people spend billions of dollars annually on lottery tickets. Some play for the fun of it, while others think that they are boosting their chances of becoming rich by winning the jackpot. The odds of winning are extremely low, but the lottery is popular nonetheless. Some state governments have earmarked the proceeds of their lotteries to specific purposes, such as education, and this has helped them win broad public approval. However, the fact is that earmarked lottery funds simply reduce the appropriations that the legislature would have otherwise had to allot from the general fund for those purposes; they do not increase them.

In his new book, “The Lottery,” Adam Cohen argues that the modern lottery is an anomaly in the history of taxation and government spending. In his telling, the lottery came into its own in the nineteen-sixties when the growth of commercial gambling and a crisis in state funding coincided. The latter problem was brought on by a combination of factors: rising inflation, the growing cost of Vietnam, and the waning of American prosperity made it difficult for many states to balance their budgets without raising taxes or cutting programs that were viewed as essential to a social safety net.

The lottery is a simple idea: for a fixed price, people can purchase tickets that are used in a drawing to determine the winners of prizes. The prize money may be cash or goods, and it is generally a fixed amount based on the total value of all the tickets sold. In many cases, the promoter of a lottery will also take some of the ticket revenue for profit and promotion costs.

Because lotteries are run as businesses with a focus on maximizing revenues, they need to promote themselves aggressively in order to attract paying customers. Consequently, they must promote to groups of potential customers that are typically ignored by other commercial businesses, including the poor and problem gamblers.

These promotions can produce perverse results. For example, in an experiment, psychologist Daniel Kahneman found that participants who selected their own numbers in a lottery paid on average five times as much as those who did not, even though their odds of winning were the same. Kahneman speculates that this result is because the participants who select their own numbers feel that they deserve to have a better chance of winning than those who don’t, so they are willing to pay more for their tickets.

Although the lottery’s roots extend back millennia, it was not until 1964 that New Hampshire, a notoriously tax-averse state, adopted the first modern lottery. Since then, all but one of the fifty states have followed suit. In the course of doing so, they have developed a large constituency of specific interest groups, such as convenience store owners (for whom lottery tickets are a staple item); suppliers of lottery games (who make heavy contributions to state political campaigns); teachers (in those states where a portion of the proceeds is earmarked for education); and, above all, the general public.