They call her the Queen of the Lottery.
Her realm: the North Broad Foodmart, a convenience store behind a gas station off Route 22 in Hillside.
One evening, as the "queen," aka Pat Howard, an insurance agent who lives in Newark, waits in line for the "green machine," someone asks how much she spends.
"Maybe $20, $30" a day, she says.
At this, the crowded store falls silent. Then, all at once, everyone laughs.
After the "queen" is finished with her order, store manager Rashmi Patel spins a swivel screen atop the lottery machine to reveal Howard's purchases: $137.
"And that's just one time," he says. "She plays the same in the morning."
If players like Howard are hooked on the lottery, then the state is hooked on them.
Since its inception 35 years ago, the New Jersey Lottery has grown into a $2.3 billion business that delivers more than $800 million a year to the state treasury.
Lottery officials are quick to point out programs it supports — from scholarships to school lunches to homes for disabled veterans.
"The New Jersey Lottery serves to benefit every single aspect of the population of this state," said executive director Michellene Davis.
But the source of lottery revenue — the very people who buy the tickets — is not spread as evenly.
The Star-Ledger analyzed five years of lottery data by ZIP code, obtained through the state's Open Public Records Act, and found a consistent and undeniable pattern: Lottery revenues (ticket sales) rise as income falls. This is particularly true for its bread-and-butter money-makers — the Pick 3 and Pick 4 drawings and instant games.
Put another way, the lottery is a regressive form of taxation.
The Star-Ledger compared lottery sales and winnings with income levels based on Census data in 577 ZIP codes in New Jersey between 2000 and 2004. Among the findings:
- Per-capita ticket sales were much higher in lower-income ZIP codes. In communities with average household income below $52,000, the lottery sold an average of $250 of tickets per person annually. That was more than double the amount for ZIP codes with $100,000 households.
- There are more lottery retailers per capita in lower-income areas. Bayonne, where the average income is $58,971, has one outlet for every 750 residents; Princeton, with an average income of $134,638, has one for every 5,450 residents.
- A contingent of hard-core players fuels sales in lower-income areas. From 2000 to 2004, 1,080 players reported winning at least 10 jackpots of more than $600 — large enough to be reported for tax purposes. The top three ZIP codes for these players were low-income neighborhoods in Irvington, Newark and North Bergen.
It all adds up to big bucks for state coffers — $809 million last year, making the lottery the No.1 "miscellaneous revenue" source, behind only the "big three" of sales, income and corporate taxes. In fact, the state receives roughly the same amount of money from lottery sales as it does from all realty transfers and casino taxes combined.
Faced with unprecedented budget shortfalls, state officials also are pressuring the lottery to grow, according to meeting minutes of the past five years. And thanks largely to the success of instant games, total sales have grown 44 percent in the past decade.
Finance experts say the state's dependence on the lottery to fund programs is troubling.
"It walks like a tax and talks like a tax," said Charles Clotfelter, a Duke University economist who has studied lottery sales patterns across the nation. "It just needs to be recognized that the state is putting a greater burden on low-income people."
Still, lottery officials dispute any suggestion the games feed on lower-income residents.
"The lottery is, above all else, a business," spokesman Dominick DeMarco said. "There is no business in the world that would target a group or groups of individuals that can't afford their product."
Lottery officials, including New Jersey's, long have hushed critics by arguing poor ZIP codes often include lottery retailers that cater to middle- and upper-income people who work in those neighborhoods.
But The Star-Ledger analysis accounted for this by adjusting each ZIP code's population to include workers as well as residents, using Census Bureau business data to determine "daytime populations." And even when ZIP codes with large daytime populations were removed from the overall statewide mix, the pattern held: Lottery sales fell as income rose.
Take the towns of Hillsborough and Belleville.
The two have roughly the same population, about 36,000, and similar daytime populations that include people who work but don't live in town, about 42,000.
When it comes to sales of lottery tickets, however, there's no comparison. Average annual sales at stores in Hillsborough, a wealthy Somerset County town, are about $1.8 million. In Belleville, a blue-collar town outside Newark in Essex County, it's $13.3 million.
Lottery officials contend the numbers still could be skewed by commuters and other travelers.
To address that argument, The Star-Ledger also analyzed data based on where players live.
Winners of jackpots of $600 or more must report their claims for tax purposes using their home address. And that data showed the same pattern: Working-class areas like Newark and Hillside had the most winners per capita, while the affluent communities of Belle Mead, Short Hills and Princeton Junction had the least.
Touchy Subject
The demographics of the lottery are a sensitive issue for officials.
Davis, the New Jersey Lottery executive director and a Seton Hall University graduate who received a college scholarship funded by the lottery, said she was "personally offended" by The Star-Ledger's findings.
"I don't agree with your analysis," Davis said. "And I'm saying even if your analysis were to be so," it doesn't take into account "the benefits that are stretched throughout the state."
Most lottery proceeds fund educational programs, including a school for the deaf, standardized tests for elementary, middle and high school students and scholarships for both low-income students and high achievers. Lottery funds also help the mentally ill and developmentally disabled.
"Every dollar provided by the lottery is one less dollar needed in the form of local and state taxes," Davis said.
Tom Vincz, a spokesman for the state Treasury Department, which oversees the lottery, pointed to one question from a 1999 Star-Ledger/ Rutgers-Eagleton Poll that showed lottery participation was about the same regardless of income. But the overall conclusion of that poll was that "the lottery is in fact regressive," meaning it takes a greater percentage of income from the poor than the wealthy.
"The end result is those that can least afford to pay wind up paying the most via the lottery," said James W. Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers. "That means they have less money for other necessities in life.
"The receipts from the lottery are used for a whole range of public programs, and essentially the lower income winds up funding most of those programs," Hughes said. "The more affluent who are smart enough not to gamble realize it's really a fool's game. They're not contributing anything to the support of the programs."
To keep people playing, the lottery spends on advertising.
Faced with higher and higher revenue targets in successive state budgets, the New Jersey Lottery Commission, has asked the state for more money to promote drawings and instant games. Over the past six years, the agency's ad budget has jumped from less than $8 million to nearly $19 million.
"If you give us more money, we sell more tickets, and we have proven that time and time again," Lottery Commissioner Stephen Boswell told officials in 2003.
Feeding Dreams
It's after 7 o'clock on a Tuesday night, and the regulars have made their way to the North Broad Foodmart in Hillside.
Pat Howard may be the "queen," but there are other prominent members of this lottery family: Richard "Herb" Herbert, who works the crowd like he's mayor; Valerie Hall, who plays the lottery because "you have to be in it to win it;" and Wyatt Warren, a 70-year-old floor refinisher who plays "all day, every day" because "they say if I don't win, it goes to education."
There is barely enough room inside the cramped, well-stocked store to accommodate the steady stream of regulars.
For Bobby Hockaday, a 50-year-old carpenter and father of three, a 50-cent Pick 3 ticket gives him a shot at $250. That the odds are one in 1,000 doesn't matter. That the lottery pays out only 55 cents in prizes for every $1 wagered doesn't matter.
"What other way, legitimately, can you enter something and be the smallest guy in the place and have the opportunity to (win) a million?" Hockaday asks. "For $1, you got hope you might hit it and be rich the rest of your life."
Hillside is among the top 10 New Jersey towns for lottery sales per capita. Its 23 lottery outlets sell an average of $559,000 worth of tickets per year — 93 percent more than average. The average income in neighborhood surrounding the Foodmart is $59,000 — about 25 percent below state average.
Forty miles south, the lottery terminal at the Buy-Rite wine shop in upscale Rumson tells a different story: There is never a line to buy tickets, and store manager John Marcelli can think of just three lottery regulars.
Buy-Rite is home to the only lottery machine in the town of Rumson, where the average household income is $217,338.
While other stores pride themselves on carrying most every type of scratch-off — there were 140 in the market last year — this store carries just three: Firecracker Cash, Dominoes and Joker's Wild.
Alice Nobbs, who works for a catering business next door, is one of the Buy-Rite regulars. She finds it lacking in its selection of instants. If more people in Rumson played the lottery, Nobbs said, she wouldn't have to drive around for tickets.
She said the reason others here don't play is obvious: "They have money."
"If it wasn't for me, they'd probably get rid of that machine."
An Old Idea
Lotteries have been around for centuries. Moses used one to parcel out land. The Romans played forms of the game during Caesar's reign. And lotteries helped fund the Great Wall of China.
In the New World, lotteries arrived with the British, who used them to finance Virginia's Jamestown settlement.
After a few starts and stops, the lottery system we know today took hold four decades ago.
In 1964, New Hampshire, desperate for revenue but reluctant to raise taxes, legalized the first modern state lottery. New York and New Jersey followed — in part to crack down on illegal numbers' rackets.
On Jan. 7, 1970, New Jersey Gov. William Cahill drew the first winning number: 3-9-4-5-8-4.
And while New Hampshire and New York proceeded with caution, it was a different story in New Jersey.
Here, the lottery was advertised as a "get-rich-quick scheme," as the state treasurer at the time, John A. Kervick, approvingly put it. And the state made it available to the masses — in supermarkets, corner stores, taverns and liquor stores.
The result was a lottery craze.
In its first three months, New Jersey was forced to hold extra drawings to deal with mounting surpluses. The $73 million in first- year sales far surpassed early estimates of $20 million.
Politicians got caught up in the fervor. Under New Jersey law, at least 30 percent of lottery revenue goes to fund education and state institutions. The state quickly came to count on lottery money to fund a smorgasbord of educational and social-service initiatives — now some 20 programs administered by five agencies.
Since 1970, the lottery has produced $14.7 billion for state coffers.
The Critics
Nationally, New Jersey ranks near the top in its reliance on lottery revenue.
According to the Tax Foundation, a policy think tank in Washington, D.C., only three other states — Maryland, Massachusetts and Georgia — derive a greater percentage of revenue from lottery ticket sales.
As politicians recognized the lottery's importance, the agency seemed above reproach. Its most prominent critic was Assembly Speaker Alan Karcher, whose book "Lotteries" argued the games were a form of regressive taxation. But the book was published 15 years ago, and Karcher died in 1999.
"The system is exploitative, abuses the work ethic and taxes the poor," he told The Star-Ledger in 1990.
The New Jersey Lottery has not faced another critic like Karcher, but like lotteries across the country, its image remains a concern.
The lottery has DeMarco, its in- house public relations officer, but in 2003 it also hired the politically connected public-relations firm MWW Group for $330,000 a year. A requirement of the bid was to show how it could handle a crisis.
"We utilize the efforts of the PR firm and the advertising firm to ensure the public has not just the games ... but information" on how the money is spent, said Davis, the lottery's executive director.
At least one state lawmaker wants to know more.
Nellie Pou, a Democratic assemblywoman from Paterson, has introduced a bill that would require the lottery to break down sales by town, so lawmakers can see which areas spend the most.
Her concern: that low-income areas like Paterson are contributing more to the lottery than they're getting back.
Looking for the Green
Every month, as many as 100 retailers apply for a lottery "green machine." They must undergo financial and criminal background checks and pay a one-time $700 fee. (The only other cost is a $100 annual fee.) In the end, they are selected based on their location, hours of operation and expected sales volume.
In recent years, the number of retailers has remained steady at about 6,000.
A "green machine" can be a boon to business. Retailers get a 5 percent cut of sales. For the best, that can amount to $100,000 a year.
The Star-Ledger's analysis also found the lottery is far more likely to grant licenses to merchants with stores in lower-income neighborhoods. In ZIP codes where residents earn an average of less than $52,000, there are about four outlets for every 5,000 people. In ZIP codes where the income level is above $100,000, there are about two for every 5,000 people.
DeMarco, the lottery's spokesman, said locations are "in direct correlation with the number of other retail, business and service establishments in that same area."
But based on the population of residents and workers, a city like Bayonne, which has an average household income of $58,945, statistically could be expected to have 45 lottery retailers. Instead, there are more than 100.
At Pyramid Traders in Bayonne, there are two lines in the tiny store — one for the lottery and one for everything else. The lottery line is always longer.
Pyramid owner Mukesh "Mike" Patel said his lottery business is driven by regulars who "come three blocks that way and three blocks that way," pointing up and down Broadway with his thumb.
Minnie Venable is one.
The 65-year-old woman, who stepped up her lottery habit after she retired from a laundry company two years ago, stops at Pyramid at least twice a day. Sometimes, if she's feeling lucky, she'll stop in a third time.
"I love the lottery," Venable says over and over again.
She has reason to. She recently won $175,000 playing Jersey Cash 5, her favorite game. She had her kitchen redone with some of the winnings.
"This is my favorite lucky store," she says. "This is the lucky spot."
Every Lottery State is doing what is portrayed in this article. It is safe to say that what goes on in NJ also goes on in other Lottery States.
Marketing 101: Put the Lottery Machines where the Lottery Players are.
This Star-Ledger Investigative Report is a rehashing of the same old stuff. Yes...poor people are more interested in winning money than the rich are. Yes it can be argued that the concept is "regressive"...however it is erroneous to refer to the Lottery as a form of "regressive taxation." As defined by Webster's Dictionary...A"Tax" is a levy imposed by the state..." That's the catch, the Sate is not imposing the Lottery Games on the poor, middle class or the rich. It is voluntary. The people participate as they see fit, we are free to play or not to play. The affluent folks of Rumson choose not to play as much as the low income citizens of Hillside, Asbury Park or Newark. Additionally, the poor win more often than the rich. In my area, a pool of over 30 players hit for millions in a local supermarket a few years ago. Regressive? Yes but so what? The blue collar people hit becasue they choose to play. I play seven days a week. I keep track of my play level, keeping my losers on file for tax purposes. I win more often than anyone in my family. I also play more. My small wins offset my losers, eventually I hope to hit "the big one". NJ Cash 5 has been my best overall winner. At times I am "up" for the year; at times I am "down". Overall not a bad bet, relative to Mega-Millions or Powerball, both of which I play too. It's my money, it's my choice. I know the odds. So what? It's Fun.
Free will, choice, personal responsibilty that is the central point of the matter at hand. We do not need well intentioned smug commissars deciding what we ought to be doing with our money. The end. ( for now.)
SUBJECT: Lottery as Regressive Taxation vs. Progressive Income Tax
Fact: Lottery Play is regressive. (Poor play more percentagewise than rich)
Fact: Progressive Income Tax- the rich pay a higher percentage than the poor.
Fact: Income Taxes are imposed by Sate and Federal law. You MUST PAY, or face fines and imprisonment.
Fact: Lottery play is voluntary.
Fact: Lotteries are not taxes! They are volunatary mechanisms to raise revenue, hence their overall popularity and success worldwide.
Why the newspaper is critical of the New Jersey Lottery I don't know. The NY Lottery is far worse.
Another media elite who's advocating a nanny state.
Hey Star-Ledger, welcome to a capitalist society. God forbid the government try to make some money for itself without ransacking others money (taxes).
The poor find the lottery entertaining, it is the chance at the dream. The rrich have Casino's and trips to places the poor can't afford. The end results are the same. People spend more then they can afford on what they want to spend more then they can afford. Toys are toys, it is just a matter of description.
I don't know about other states, but in Wisconsin you have to pay cash for any lottery purchase. No checks, no credit cards allowed. It is against the law.
I doubt the woman, being an insurance agent, is one of the "poor people" who make 6 or 7 bucks an hour on their main full time jobs. Those people don't usually clear enough money to make bets in the amount she made.
Is it a regressive tax? You could say that about almost any tax. The poor have fewer dollars. But yeah, the lottery is a tax...albeit a "voluntary" tax. After all, the revenue goes to the govt. The govt makes no money on its own; only what it takes from from taxpayers. Since at the Fed level, the top 2% of the taxpayers pay about 80% of all the tax revenue the Fed gets, I don't think the govt can get much more out of them. So they have to get it out of those making less. And the way govts spend and can't stay within their budgets, I expect it will only get worse.
The poor find the lottery entertaining, it is the chance at the dream. The rrich have Casino's and trips to places the poor can't afford. The end results are the same. People spend more then they can afford on what they want to spend more then they can afford. Toys are toys, it is just a matter of description.
I think the rich find it entertaining also, but I agree that many more poor people who play are playing for a chance of a better life.
I don't know about other states, but in Wisconsin you have to pay cash for any lottery purchase. No checks, no credit cards allowed. It is against the law.
I doubt the woman, being an insurance agent, is one of the "poor people" who make 6 or 7 bucks an hour on their main full time jobs. Those people don't usually clear enough money to make bets in the amount she made.
Is it a regressive tax? You could say that about almost any tax. The poor have fewer dollars. But yeah, the lottery is a tax...albeit a "voluntary" tax. After all, the revenue goes to the govt. The govt makes no money on its own; only what it takes from from taxpayers. Since at the Fed level, the top 2% of the taxpayers pay about 80% of all the tax revenue the Fed gets, I don't think the govt can get much more out of them. So they have to get it out of those making less. And the way govts spend and can't stay within their budgets, I expect it will only get worse.
I always thought that you had to pay for lottery purchases with cash, until I read where that lady used her dead mother-in-laws credit card to purchase a winning ticket.
Why the newspaper is critical of the New Jersey Lottery I don't know. The NY Lottery is far worse.
bOTTOM LINE> Whether players are poor, or rich, or where they live or how they spend their money is not the Star-ledgers or any other newspapers buisness. It is not mine ,yours or anyone elses either. The newspaper undoubtably does,'nt have anything else to write about.
If i ever get the chance to buy the Star-Ledger, I'll make sure I put it down on the floor for my dogs to use. This newspaper needs to get another bone to chew on...
Quote from the Star-Ledger:
There are more lottery retailers per capita in lower-income areas. Bayonne, where the average income is $58,971, has one outlet for every 750 residents...
I agree with the article EXCEPT for the low income part. Wonder what they call people living on Social Security making less than $10,000 per year?
Anyone with an income in the range of $50,000 should be living quite well and can afford all the lottery tickets they want!
I look at the issue like this:
It will be interesting to watch the following two articles that will be published tomorrow and Tuesday. A little bird whispered in my ear that a certain popular lottery website may be mentioned.
Hmmm...I wonder which site that will be.
I bet you will get a few more people joining because of the article!
This is in response to the New Jersey Lottery article posted in The Star-Ledger. I don't think the article properly represented the "poor buyers" of the Lottery. I live on Social Security and spend $16.00 per month on the Mega Millions game. I have been playing the game since it came to New Jersey. The game brings excitement to me two times a week as I dream about what I would spend the jackpot on. Even when I don't win it's at least a source of entertainment, and most of the time a bigger jakpot to dream about. I can't get it out of my head that you can win hundreds of millions of dollars of one buck. I would assume that poor people make up the largest buyer because they need the money the most. If I had the choice of buying a Star-Ledger with my last dollar or a lottery ticket, I would say I stand too gain significantly more from the lottery ticket. I guess some people just don't understand "it pays to dream"
$30 a day?! If I had that kind of money to spend every day on the lottery I would not need it! I would find much more productive ways to put that money to good use. I only spend what I do now because the money I do spend is not enough to amout to much of anything else, even if saved for years. Poor people spend more, because they are sick of just getting by. The lottery is indeed a tax, a pyschological one with strong autosuggestion advertising. They only want you to think it is a choice...
I repeat: The Lottery is not a Tax.
A Tax is mandatory, required, imposed by the governing authorites to raise revenue, failure to pay means a fine/jail.
The Lottery is a voluntary game, which suppliments the state government's tax revenue.
Just because the Lottery money goes into Satate coffers does not transform the game into a TAX. Taxes are imposed. It ain't a Tax!
Finally, what tax PAYS the taxpayers $ 100,000,000.00 prize for paying the tax?
or $1,000,000.00 or $1,000.00 Get the distincttion? A voluntary tax is an inncorrect use of the words voluntary and tax- they cancel each other out.
I am sure most will consider it a tax, especially when they never win. There is NO payback for the majority...losers. Of course if you are in the lucky minority, then the terms change. Maybe you could call it your daily donations. As I said, a psychological self-imposed tax, with a lot of help from advertisements...
If one spreads one's play amongst the various games-I play NJ Cash 5 daily in addition to "The Big Ones" the chances of winning some money back increase substantially. No big fortune mind you, but a enough cash back to offset the yearly play. Study the odds, play within reason consistently for the best results, being in the game enough to stand a shot at one the the BIG HITS. Most folks I speak wiyth are erratic emotionally driven players...fine, but methofdical steady play with the better odds games being at the forfront has been rewarding for this player.
Beware of anyone who claims that the lottery is a "regressive tax". They really don't know what those words mean - they just sound bad.
1. The lottery is not a tax. Stop buying lottery tickets and stop paying your taxes and see what happens.
2. At $1 for everyone, the price of a lottery ticket IS regressive (though the term is usually limited to taxes). So is milk, shoes, the price of gas, etc.
3. Are sales higher in "poor" areas? Probably, but that is because the gas stations and convenience stores, etc. are located in those mixed zoning areas. Not too many gas stations in the gated communities. Guess where those folks buy their lottery tickets. Gallup has done their own independent poll (July 1999) and found that "the highest rates of gambling in the U.S. are found among those in higher income and education brackets". Generally, the lottery is played by the middle class and the average lottery player earns slightly more and is slightly better educated than the average American.
4. If you were marketing a product, who would you target? People with no money to spend?
5. Over $40 billion per year is spent on the lottery in the U.S. What is it that poor people don't have?
6. But I do agree that if someone makes less money than you, you should be able to tell them what to do.
I repeat: The Lottery is not a Tax.
A Tax is mandatory, required, imposed by the governing authorites to raise revenue, failure to pay means a fine/jail.
The Lottery is a voluntary game, which suppliments the state government's tax revenue.
Just because the Lottery money goes into Satate coffers does not transform the game into a TAX. Taxes are imposed. It ain't a Tax!
Finally, what tax PAYS the taxpayers $ 100,000,000.00 prize for paying the tax?
or $1,000,000.00 or $1,000.00 Get the distincttion? A voluntary tax is an inncorrect use of the words voluntary and tax- they cancel each other out.
If a private company was running the Lottery it wouldn't be a Tax, however the State runs the Lottery for the purpose of obtaining State Revenue, so that makes it a Tax.
As far as the $100,000,000 prize goes: That's payment for the loss of your privacy and leading other Lottery Players to the Lottery Machines in future Drawings. Marketing101: It pays to advertise. Nothing advertises better than pictures of people receiving BIG Checks (did you notice? they don't use Cash!).
I repeat: The Lottery is not a Tax.
A Tax is mandatory, required, imposed by the governing authorites to raise revenue, failure to pay means a fine/jail.
The Lottery is a voluntary game, which suppliments the state government's tax revenue.
Just because the Lottery money goes into Satate coffers does not transform the game into a TAX. Taxes are imposed. It ain't a Tax!
Finally, what tax PAYS the taxpayers $ 100,000,000.00 prize for paying the tax?
or $1,000,000.00 or $1,000.00 Get the distincttion? A voluntary tax is an inncorrect use of the words voluntary and tax- they cancel each other out.
If a private company was running the Lottery it wouldn't be a Tax, however the State runs the Lottery for the purpose of obtaining State Revenue, so that makes it a Tax.
As far as the $100,000,000 prize goes: That's payment for the loss of your privacy and leading other Lottery Players to the Lottery Machines in future Drawings. Marketing101: It pays to advertise. Nothing advertises better than pictures of people receiving BIG Checks (did you notice? they don't use Cash!).
Reply to Raven 62 from Demonter:
"TAX-levy imposed by state on income, property, etc.." Webster's Dictionary.
"Impose-to force"....Webster's Dictionary.
"Lotto(lottery) from the French-a game of chance"...Webster's Dictionary.
A game of chance that is played VOLUNTARILY is never IMPOSED (forced), therefore Raven 62 it is not a TAX. Simply because 45% of the revenue goes to the States, does not alter the exact defination of a TAX. Unless the levy of revenue is MANDATORY...it can not be called a TAX! It is not my opinion here, refer back to Webster's Dictionary; a levy forced under penalty of law is a TAX...LOTTERY play is not mandatory. WHERE THE MONEY GOES DOES NOT ENTER INTO THE VERY CLEAR DEFINITIONAL DISTINCTION BETWEEN A TX AND A VOLUNTARY GAME OF CHANCE-LOTTO. The distinction is very important.
The Lottery is an Entertainment Tax which you pay to the State to be entertained by a Game of Chance.
The Lottery is an Entertainment Tax which you pay to the State to be entertained by a Game of Chance.
Reply To Raven 62 by Demonter:
The Lottery is not a Tax...the Lottery is a voluntary game of chance, where most of the revenue is returned to the players in the form of prizes. You are stretching the semantics by calling the lottery an Entertainment Tax ....
ALL TAXES ARE MANDATORY BY THE VERY DEFININTION OF TAX.
LOTTERY PLAY IS VOLUNTARY...BEING VOLUNTARY IT DISQUALIFIES ITSELF FROM THE STRICT DEFINITION OF TAX. INCOME TAXES, SALES TAXES, TAXES ON CIGARETTES, LIQUOR, HIGHWAY TOLLS...THESE ARE TAXES MANDATED BY THE STATES /FEDERAL GOVERNMENTS WHICH WE MUST PAY. HOWEVER, WE CHOOSE TO PLAY OR NOT TO PLAY LOTTERIES. WHERE IS THE TAX? Again, just because part of the revenue goes to the State does not make the Lottery a form of taxation. Yes, Lotteries are a method of gathering revenue for the States but so are AUCTIONS OF STATE OWNED PROPERTY. If I win a bid to buy a peice of land being sold by my state, that purchase is not a tax. Even though the revenue generated by the sale of the property goes into the state's treasury. Neither the Lottery sale or the property sale is a tax. AGAIN, A TAX IS IMPOSED BY THE STATE TO GATHER REVENUE, LOTTERIES ARE NOT REQUIRED, THEREFORE THEY ARE NOT AN ENTERTAINMENT TAX; nor is buying a parcel of state owned land a form of paying a tax.
The Lottery is an Entertainment Tax which you pay to the State to be entertained by a Game of Chance.
Reply To Raven 62 by Demonter:
The Lottery is not a Tax...the Lottery is a voluntary game of chance, where most of the revenue is returned to the players in the form of prizes. You are stretching the semantics by calling the lottery an Entertainment Tax ....
ALL TAXES ARE MANDATORY BY THE VERY DEFININTION OF TAX.
LOTTERY PLAY IS VOLUNTARY...BEING VOLUNTARY IT DISQUALIFIES ITSELF FROM THE STRICT DEFINITION OF TAX. INCOME TAXES, SALES TAXES, TAXES ON CIGARETTES, LIQUOR, HIGHWAY TOLLS...THESE ARE TAXES MANDATED BY THE STATES /FEDERAL GOVERNMENTS WHICH WE MUST PAY. HOWEVER, WE CHOOSE TO PLAY OR NOT TO PLAY LOTTERIES. WHERE IS THE TAX? Again, just because part of the revenue goes to the State does not make the Lottery a form of taxation. Yes, Lotteries are a method of gathering revenue for the States but so are AUCTIONS OF STATE OWNED PROPERTY. If I win a bid to buy a peice of land being sold by my state, that purchase is not a tax. Even though the revenue generated by the sale of the property goes into the state's treasury. Neither the Lottery sale or the property sale is a tax. AGAIN, A TAX IS IMPOSED BY THE STATE TO GATHER REVENUE, LOTTERIES ARE NOT REQUIRED, THEREFORE THEY ARE NOT AN ENTERTAINMENT TAX; nor is buying a parcel of state owned land a form of paying a tax.
In that case all are Voluntary: If you don't have Income you don't have to pay Income Tax, If you don't purchase items that are on the State Sales Tax List you don't pay Sales Tax, If you don't purchase gasoline you don't have to pay Gasoline Tax, If you don't purchase Cigarettes you don't have to pay Cigarette Tax, If you don't own Property you don't have to pay Property Tax, If you don't purchase Lottery Tickets you don't have to pay the Entertainment Tax. As soon as you do any of them the State gets their share and it goes directly to the State Treasury.
Respnse to Raven 62 from Demonter:
Are you saying that the State's share of the Lottery is a form of "Tax"? We are getting very semantical here. The Lottery as a game is a revenue gathering mechanism separate from the imposed system of taxation since, again it is voluntary. However, the state does have a disproportionate share of the overall pot relative to other forms of gambling (ie. Casinos )
If it is your position that the State's large share in the Lottery Games is their "TAX" or as it is said on the street their "Vigorish" taken from the players I can agree with that. IN SUMMARY, WHILE THE LOTTERY AS A GAME OF CHANCE IS COMPLETELY VOLUNTARY AND NOT A DIRECT TAX, THE STATE'S VERY LARGE PERCENTAGE OF THE POT IS A TAX ON THE WHOLE GAME. THIS IS A TRUE AND ACCURATE ASSESSMENT OF THE GAME.
If one wins big, it becomes a tax real quick regardless.
If one wins big, it becomes a tax real quick regardless.
In response to sirbrad on 12/06/05:
The whole win doesn't become a TAX! Just about 36%..the lucky winner gets to keep most of the money. Take the cash option of course, the annuity is a ripoff. Factor in inflation (the time value of money) and the often overlooked fact that if you die anytime after you start getting your annuity, the IRS levies an immediate inheritance TAX of 25% due at once...your heirs are screwed. Get a big life insurance policy for your heirs to cover the tax. It happened to a guy a few years ago and it messed up his heirs big time. That is if you care.
CHUCK 32:
You are right, the Lottery is not a tax. Taxes are not voluntary. Raven and I have a debate going on, I agreed that the State's percentage of the player's pot can be considered a sort of a"TAX" since it is imposed by them as their profit; you have to pay it if you play...so with a sematic twist, yeah sure they Tax us. Que sera, sera.
Well, I can't agree that the lottery is a tax - even as a semantic twist. To argue that all taxes are voluntary since you don't have to work, buy things, or own anything is a little absurd. A tax is an involuntary assessment placed on some thing of value - specifically not something that is sold by the government. The portion of the dollar that the state lottery keeps is called "profit". Lotteries are indeed pretty unique in that it is a product sold by the government, but it is much more in the nature of profit rather than tax.
I disagree that the lump sum is a ripoff. The lottery can invest the entire cash amount. The winner first pays income taxes (Federal and State) which can go well over 40%, and then has the rest to invest. The cash winner starts with about half the money to invest and will have to do pretty well to beat the lottery's earnings. It is possible for the winner to set up an annuity stream that equals what the lottery can earn in interest and pay out, but the winner will have to accept quite a bit of risk.
You do identify a problem with estate taxes. The feds want to tax the present value of the estate - even if it includes future payments. That can devastate an estate with penalties and interest on money that they don't yet have. For this reason, Powerball will cash out an annuity stream at the request of an estate. When the winner dies the estate can take the remaining cash, pay the estate taxes, and distribute the rest - to relatives who then pay state inheritence tax, then buy something and pay sales tax (well, you get the idea).
To Chuck 32 from Demonter:
The State's percentage is their profit; in the gambling world they refer to the bookmaker's percentage as the "vigorish". Raven considers the fact the a government is taking a profit out of the play it is a "TAX". According to Webster's Dictionary a tax is an imposed levy...the State's percentage is an imposed levy, therefore Raven refers to it as a TAX. That I call a "semantic twist" since it has the one essential ingredient common to all taxes-the fact that they are imposed by the State...you disagree, I understand because it's not literally a tax as such. I did preface my analysis with the fact that it's a "semantic twist". People toss words and concepts around without a complete objective analysis at times. Enough said.
In addition, who claims that the lump sum is a ripoff? My statement was that the annuity is a bad deal considering the time value of money-inflation and the scandalous IRS treatment if a winner drops dead prematurely. As I see it Chuck 32 we are in agreement on the essential facts.
Yeah, I don't think that we disagree on much. I did mean to refer to you saying that the annuity was the ripoff, not the lump sum. I type faster than I think. The time value of money only means that a dollar today is equal to more dollars tomorrow due to the interest-earning capability of the cash. The lottery does invest the money, of course, and does payout more dollars in the annuity. The annuity is only a bad deal if you can do better with the investments. For most people, the annuity is actually the best option. With a cash amount of say $100 million, the lottery gets to invest $100 million while the cash winner pays taxes and then has maybe $55 million or so to invest (depending on the state tax rate). It takes quite an investment to catch up to the lottery annuity stream - and don't forget that the lottery stream is guaranteed.
The best option, of course, would be to let the winner choose their own combination of cash and some term of annuity option. May 20% paid immediately and 80% paid out in a graduated annuity for as long as you expect to live. Sadly, the IRS won't quite allow that much choice yet. They only waived the constructive receipt rule several years ago to let winners make their choice after the win.
I will say that Raven's arguement that it is a tax is about the best I've heard so far.
To Chuck 32 from Demonter Re: Annuity
What's the half-life of the annuity value factoring in inflation? We sometimes forget that we would be getting paid in cheaper dollars every year...the half life of the purchasing power being 14-15 years into the cash flow stream. What would a buck be worth in the last few years of a 30 year annuity? Annuities are better during the first decade than during the last. The inflation risk is the biggest risk in accepting a long term payout...who knows what the value of a buck will be? Less, that is for certain. What will the cost of an average house be in 25-30 years? Or a typical automobile? Most savvy folks (accountants, investors) I've asked this question to advised that they would recommend taking the cash lump sum and invest it in real estate, blue chip stocks etc. A bird in the hand is worth two in the bush...
To Demonter from Chuck32 Re: Annuity
We do disagree on something after all . Of course the financial experts say to take the cash - they get to invest it and make some of their own cash. Actually, I have talked to dozens of experts, though usually those who write columns for newspapers giving financial advice. After they realize how the annuity is paid out (some thought it was just saved until the end of the term) and once they realize that the winner pays out nearly half of the cash amount in taxes right away, they do change their minds - well, a few did still want to take the risk. There have also been two finance professors who have written papers on how strange it is that people take the cash when they can get a guarateed investment that starts out by investing twice the money. You have $50 million to invest and I have $100 million to invest. Let's see who can make more interest. Ready, set, go!
Inflation is a risk for any future money stream but it is not a factor here. The problem of inflation is exactly the same risk for a cash winner who invests (half) the lump sum on his own. His earned dollars will be worth less too. It is true that a lottery prize should not be an equal annual payment. $1 million in year one is not the same as $1 million in year 15. The Powerball game has gone to a graduated annuity stream; raising each year's payment by 4% over the previous year, as a hedge against inflation. That is really want a winner who chooses the annuity wants - to forget about having to worry about investing and losing the money.
The annuity is the bird in the hand. The annuity winner has that guarantteed income stream (and with Powerball a graduated annuity stream that keeps up with inflation). The chance of earning more against the risk of losing it all, is the two birds in the bush. The annuity is certainly not always the best choice for everyone, but it is likely the best choice for most winners. Too bad that is so quickly dismissed without thinking about it. If you do run into one of those savvy investors again, remind them about the income tax hit on the cash amount and how the lottery can invest the cash amount BEFORE taxes. Let them run the numbers. They can certainly find some hot new stock that can catch up to the lottery annuity (or might lose it), but it is hard to beat a guaranteed graduated annuity that starts off with twice the cash to invest.
REPLY TO CHUCK 32 FROM DEMONTER
CHUCK YOU SEEM TO BE CONFUSED REGARDING THE RELATIONSHIP BETWEEN THE GROSS AMOUNT OF THE ANNUITY VS. THE CASH LUMP SUM.
CHECK ANY LOTTERY FAQ SECTION REGARDING THE SETTLEMNT OPTIONS
now is the time for lotteries to SERIOUSLY REDUCE SPENDING. NOW IS THE TIME TO PUT MONEY IN THE POCKETS OF THE POOR BEFORE THEY TOTALLY STOP PLAYING. IT IS SORT OF LIKE EATING FOOD WITH NO FIBRE,AFTER AWHILE PEOPLE WILL GET WISE AND START EATING HIGH FIBRE FOODS-- LEAVING POTATO CHIPS (LOTTERIES) in the
dust.