State Legislatures Play the Lotto

Last Friday, March 30, the jackpot for the Mega Millions lottery grew to a record-breaking $656 million.  With the jackpot at a record high, it caught the eye of not only millions of lotto hopefuls, but also state legislatures. 

The winner of the lotto has to pay a hefty tax back to their state.  In most states the tax on winnings ranges from 5 to 9 percent.  For states such as Rhode Island and New Hampshire, this meant the possibility of an over $20 million payout which would have gone a long way in their small state budgets.

In the end it was the Illinois, Maryland and Kansas state legislatures left with smiles on their faces as three residents from these three states split the record jackpot. Illinois and Kansas both have 5 percent taxes on winnings, meaning this jackpot alone will bring in an estimated $7.9 million for each state.  Maryland has an 8.5 percent tax rate on winnings and will take in an estimated $13.4 million from the winner. 

The Mega Millions jackpot is especially welcomed revenue for state legislatures because it comes largely from other states’ pockets.  Most lotteries are confined to one state but the Mega Millions is played in 42 states plus the District of Columbia and U.S. Virgin Islands. 

Many state legislatures rely on lottery revenue as part of the budget each year.  According to the website ThinkProgress.org, lotteries were first perceived as fiscal saviors, but they do not annually bring in the anticipated revenue.  Even with this knowledge, many states still earmark lottery revenue for specific parts of the budget, most often education. 

Studies have shown that this practice is not a good long-term solution to budget imbalances at the state and local level.  The Nelson A. Rockefeller Institute of Government found that “new gambling operations that are intended to pay for normal increases in general state spending may actually add to, rather than ease, state budget imbalances.”

Taking New Hampshire as an example, 27 percent of every dollar spent on a lottery ticket is earmarked for education.  What many people don’t realize is that because state governments expect to make a certain amount of money each year from the lottery, they actually decrease the allotted amount of stable funds for education. This means that the money from the lottery is not a bonus for education, but money that education actually relies on each year. 

This means states are betting on a steady revenue stream each year from lotteries.  Unfortunately for a state like New Hampshire that has seen the revenue on a steady decline for the past five years, this means less money for schools. 

So why earmark the lottery money for such a vital part of the budget such as education?

States often earmark lottery revenues toward education as a marketing ploy.  It sounds a lot better to a consumer when close to 30 percent of each dollar is going toward education rather than going to corrupt politicians’ salaries or an unnecessary regulatory board.

Lotteries aren’t just gambling away your money, they may be gambling away your child’s education too.  

-Tyler J. Tokarczyk