In the United States, Americans spend more than $80 billion annually on lottery tickets. The odds of winning are extremely low but the games are popular with people who believe that they can turn a few bucks into a big fortune. However, the majority of people who win a lottery do not spend their prize money wisely. Some buy a new car or a house and others spend it on a lavish vacation.
In addition to these ill-advised purchases, the average lottery winner loses about one-third of their winnings in taxes and other withholdings. The remainder is often invested in a business or used to pay off debt. A recent study showed that most lottery winners go broke within a few years.
The first recorded lotteries took place in the Low Countries in the 15th century, raising funds for town fortifications and charity for the poor. The game was so popular that it soon spread to England and eventually to the American colonies, despite Protestant proscriptions against gambling.
Lotteries have always been popular in times of financial stress, when fears of tax increases or cuts in public services heighten public anxiety. But they have also won broad approval in times of prosperity, indicating that their popularity is not linked to state governments’ actual fiscal health. Moreover, there is no evidence that the introduction of a lottery causes other forms of gambling to decrease.
During the boom in state government spending that began in the nineteen-sixties, some voters saw a lottery as a way to finance a wide range of popular services without increasing taxes or cutting programs for the poor. This arrangement began to crumble in the nineteen-seventies as population growth, inflation, and the cost of wars put a strain on state budgets.
At this point, lottery advocates shifted their pitch. No longer arguing that the lottery would float most of a state’s budget, they argued that it could pay for just one line item—usually education, but sometimes elder care or even aid for veterans. This approach had the advantage of making it easy for legalization advocates to frame their argument in terms of a specific and popular service.
The current era of large jackpots and slick advertising has made lotteries seem like a very appealing alternative to paying a higher income tax or cutting spending on a social safety net. But the truth is that lotteries do not provide a good substitute for sound fiscal policies. For one thing, their revenue streams tend to be skewed toward particular constituencies—convenience store owners (lottery profits are frequently spent on marketing); lottery suppliers (hefty contributions from these companies to state political campaigns are reported); and teachers in those states where lottery revenues are earmarked for education. These groups have a strong interest in seeing the lottery grow. They have also been adept at mobilizing the grassroots, a crucial element in getting the votes needed to pass a constitutional amendment or referendum on a lottery.