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International Social Science Review

Point: state lotteries are needed

Point: state lotteries are needed

Blake Hart

The current economic climate in the United States has adversely affected almost every corner of the marketplace. With most sectors of the work force experiencing layoffs and hiring freezes, less money is coming into households, and, as a consequence, states and local communities are receiving less revenue from tax collection. States are continuously in search of revenue to supplement rapidly declining general funds. This search has drawn many state legislatures to support state-sanctioned lotteries as a viable measure to increase state revenues.

Economic decline has spurred state governments to find ways to meet financial needs without imposing new or higher taxes on local residents. State lotteries provide a valid means of voluntary taxation to allow for such worthy goals as the growth of education, welfare programs, and transportation upgrades. Without a state lottery, legislators are compelled to impose higher taxes upon citizens to meet these needs. Lotteries thus provide essential funds for state programs through voluntary taxation.

Lotteries have been a tool used by governments, civic groups, and private charities to fund public services for over 500 years. (1) The first commercial lotteries appeared in Belgium in the 1400s, gained popularity, and spread across Europe to Italy and England. (2) American history provides several examples of lotteries used to benefit states and their citizens. In 1826, for example, the Virginia legislature granted former President Thomas Jefferson authorization to hold a lottery to sell his properties in order to alleviate some of the large debts he had accumulated. Jefferson, however, never actually held his lottery. (3) In seeking to rebuild the South after the Civil War, Southern states used lotteries to fund state programs. (4) Currently, a number of states use the lottery to fund public services. Georgia, South Carolina, and Tennessee each use state lotteries to support education programs. The state lottery is an attractive option to legislators because citizens are not compelled to contribute and state revenue is enhanced by the proceeds of this “voluntary form of taxation.” (5)

In his essay “Financing Public Goods by Means of Lotteries,” the economist John Morgan argues that “relative to the standard voluntary contributions mechanism, lotteries: (a) increase the provision of the public good; (b) are welfare improving; and, (c) provide levels of public good close to first-best as the size of the lottery prize increases.” (6) In short, lotteries benefit states. Proceeds from state lotteries go towards public goods such as education, or, in the case of Indiana, transportation. (7) Not only do funds collected through state lotteries help primary and secondary education, they also contribute to the welfare of individuals as educational lotteries allow those who could not afford higher education to receive financial assistance for a college education. Since state lotteries support the public interest by contributing to public services, they are a useful and viable financial resource for states.

Properly managed state-sanctioned lottery programs have helped states raise over thirty billion dollars in revenue nationally. (8) Many states reserve lottery proceeds for certain areas such as university scholarship funds and early childhood programs. This system has been especially successful in Georgia, which, in 1995, “provided $85 million in scholarships which allowed more than 100,000 Georgia high school graduates to receive post secondary education … also $157 million allowed 48,000 four year olds to attend free pre-kindergarten.” (9)

Another public benefit derived from state lotteries is found in the jobs created by these lotteries and the programs they help fund. More than 8,000 jobs in Georgia are directly attributable to the state lottery and its funded programs. These newly created jobs have produced $342 million in personal income in the state. (10) As a consequence, the lottery is now the fourth largest source of revenue in Georgia, trailing only personal income tax, general sales tax, and corporate income tax. (11)

The success of Georgia and other state lotteries can be traced, in part, to the large influx of money from neighboring states that lack such games of chance. North Carolinians, with no state lottery of their own, spend $100 million dollars annually participating in Virginia’s lottery. South Carolinians have sent $95 million dollars a year in lottery monies to subsidize Georgia’s state education system. (12) Large amounts of money leaving a state’s borders hurt the economy and exacerbate state budget problems. This is causing more states to debate the pros and cons of implementing a lottery.

States can also profit from lotteries because of the economic benefits of providing relief to state taxpayers. The Wisconsin state legislature, for example, has given its citizens close to two billion dollars in property tax relief since that state’s lottery began in 1988. (13) Such benefits are not uncommon. It is thus evident that the state lottery is an effective means to raise needed funds voluntarily without raising taxes. When effective administration of this money is achieved, the public can benefit from this windfall of revenue.

Adults who value the chance to win big in the lottery more than they value the money they are spending to do so will participate in such games of chance. These adults make independent decisions concerning how they will spend their limited resources. No distinction can be made between lottery advertising and the alluring propaganda of fast food restaurants or alcoholic beverages, both of which have incredibly adverse effects on those who routinely consume those products, and from which the state receives considerable tax revenues. The risks and failures of state lotteries are as well documented as their benefits and successes. Adults have to be the lone stewards over their individual finances however they choose to allocate them. When effective administration of lottery revenue is achieved, the proceeds can accomplish a great deal of good.

ENDNOTES

(1) John Morgan, “Financing Public Goods by Means of Lotteries,” Review of Economic Studies 67:4 (October 2000):761-84.

(2) Earnest Blanch, “Lotteries and Pools,” American Statistician 3:1 (February 1949):18-21.

(3) Ibid., 18.

(4) Ibid.

(5) Donald E. Miller and Patrick A. Pierce, “Lotteries for Education: Windfall or Hoax?” State and Local Government Review 29:1 (Winter 1997):34-38.

(6) Morgan, “Financing Public Goods by Means of Lotteries,” 763.

(7) Miller and Pierce, “Lotteries for Education: Windfall or Hoax?” 34.

(8) P. Edward French and Ronald E. Stanley, “Can Students Truly Benefit From State Lotteries: A Look at Lottery Expenditures Toward Education in the American States,” 2-12 (Paper presented at the Western Social Science Conference, Reno, Nevada, April 18-22, 2001).

(9) Ibid.

(10) Joseph McCrary and Stephen E. Condrey, “The Georgia Lottery: Assessing Its Administrative, Economic, and Political Effects,” 16 (Paper presented at the Southeastern Conference on Public Administration, Baton Rouge, Louisiana, October 10-14, 2001).

(11) Ibid.

(12) Jonathan Dube, “N.C. Watches as States Add Lotteries,” http://www.jondube.com/ resume/charlotte/lottery.html, 2.

(13) North American Association of State and Provincial Lotteries, “Where the Money Goes,” http://www.naspl.org/benefits.htlm, 5.

BLAKE HART and JONATHAN SOFLEY are graduate students studying public affairs at Western Carolina University.

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