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April 01, 2012

Fairness

Head exploding story of the week:

It has often been said that lotteries are a tax on the poor. And that's a fair description.

Joe Weisenthal pointed out yesterday that poor people regularly buy lottery tickets, while rich people only buy them when the jackpots have gotten huge.

What's less commonly realized is just how much money poor people spend on lottery tickets.

According to a 2008 study, reported by PBS, households that earn less than $13,000 a year spend a staggering 9% of their income on lottery tickets. (via Scott Heiferman).

That's 9% of an income that is presumably extraordinarily hard to live on to begin with.

It's hard to know where to start with this one (maybe with the observation that the sensationalistic 9% figure was wrong?). Skip ahead to see how we can fix the "problem" of poor people spending money they don't have in ways the author doesn't approve of:

... given that lotteries are primarily used to generate revenue for states, might it not be fairer to just collect the revenue directly, as taxes?

I'm not even sure what he's advocating here. Presumably, the government could lessen the unfairness of people voluntarily spending money they can't afford to spend by forcing others who have no desire to buy lottery tickets to spend... what? An equal amount of money?

But that's not "fair" either, because those who make more can afford to spend more.

I know! Let's make them spend a proportionate share of their income. But wait - that's not really fair either, because they'll still have more disposable income left over. The only way to make this fair is to force higher earning households to spend almost all of their disposable income! That way, they too will be spending money they can't afford to spend!

Of course, to truly maximize revenue (and allow government to transfer more wealth to lower earning households), government should eliminate those pesky payoffs entirely.

But wait! What if we just turned all income taxation into a giant mega-gazillion lottery?

Or have lotteries discovered a magical way to tax people--one in which even anti-tax crusaders voluntarily choose to pay huge taxes in exchange for a minuscule chance of making a killing?

Should the United States government raise ALL its tax revenue that way?

Hmmm... if we make the contributions "fair", then won't the wealthiest households have an "unfairly" high chance of winning compared to the poor ones?

Fairness is hard.

Posted by Cassandra at April 1, 2012 08:31 PM

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Comments

The lottery cracks me up. It's regressive in its income impact, because poorer households pay a higher percentage of their income. On top of that, it's the opposite of wealth redistribution; it takes small amounts of money from many (mostly poor) people and dumps much of it, minus a tax retained by the state, onto a single now-very-rich person. But governments love it, because it raises money without inspiring much resentment in the revenue sources, which is the way, you know, with voluntary programs. Progressive politicians who actually care about whether their policies are internally consistent (I know there must be some) surely tie themselves into knots trying to reconcile all these evil tendencies with the stream of gold that flows into the public treasuries. It's kind of like the cigarette taxes.

But this was the first time I'd run across the amusing notion of simply taking the lottery payments involuntarily as a new tax. Brilliant. That really turns the whole mess into an impressive mental corkscrew, while removing perhaps the only aspect of the system that made it popular and functional to begin with.

Posted by: Texan99 at April 2, 2012 12:22 PM

... this was the first time I'd run across the amusing notion of simply taking the lottery payments involuntarily as a new tax. Brilliant. That really turns the whole mess into an impressive mental corkscrew, while removing perhaps the only aspect of the system that made it popular and functional to begin with.

That was the part that amused me the most - under the voluntary "tax", no one is being compelled to opt in unless (in their subjective judgment) they receive something of value for the price of the ticket.

Along comes government to second guess all the troublesome voluntariness and nonconforming value judgments!

"We're just trying to help... really".

*snort*

Posted by: Help! Help! I'm Being Regressed! at April 2, 2012 12:47 PM

I am reminded of one of the many, many, original ideas that I’ve had to transform this country into something that of which Michelle Obama could be proud. It’s a national lottery that I call “PROGGO”©. (I was going to call it “PROGRESSO,” but the soup company lawyers were fascists.)

Unlike your typical LOTTO game that promotes reckless consumer-related fantasies while sucking the food off of the table of poor people with substandard mathefication ability, PROGGO © is based upon the same “fairness” principles that guide our system of taxation.

Under the current LOTTO system, the odds of winning the LOTTO jackpot are (roughly) 176,000,000:1 – no matter how much you make! Under PROGGO ©, as your income decreases, you chances of winning increase ten-fold! Just find you income bracketFor example:
Income Odds of winning
Top 1% 176,000,000:1
Top 10% 17,600,000:1
Top 20% 1,760,000:1
Top 30% 176,000:1
Top 40% 17,600:1
Top 50% 1,760:1
Bottom 40% 1:17,600
Bottom 30% 1:176,000
Bottom 20% 1:1,760,000
Bottom 10% 1:17, 600,000
Bottom 1% 1:176,000,000

As you can see from the chart above, those in the Bottom 1% income bracket are nearly assured of a winning ticket and their fair share of the jackpot. But to make it even more fair, PROGGO © awards a series of ”incentive points” for those players that belong to groups that historically have been excluded from the ranks of privileged wealth: women, minorities, gays, undocumented workers homeless, and the unjustly incarcerated. The more incentive points you accumulate, the higher your overall share of the jackpot.

Of course, in order to make sure that the PROGGO © jackpot is fully funded for every drawing, those in the Top 50% of income recipients will be required to purchase PROGGO © tickets on a weekly basis, the price of which will be determined by an independent Board appointed by the president.

And, of course its constitutional.
Are you kidding me?

Posted by: spd rdr at April 2, 2012 12:51 PM

Of course, in order to make sure that the PROGGO © jackpot is fully funded for every drawing, those in the Top 50% of income recipients will be required to purchase PROGGO © tickets on a weekly basis, the price of which will be determined by an independent Board appointed by the president.

Have you ever considered running for public office?

You're a natural!

Posted by: Barack Obama at April 2, 2012 01:11 PM

Buy the tickets, then hush and eat your broccoli you weevil .05%er !

Or else...

Posted by: Judge Roy Bean at April 2, 2012 01:32 PM

Buying lottery tickets is a choice, we are not (yet) required to buy them.
the poor can afford to buy more tickets because the tax paying workers are buying their food. [foodstamps].

Posted by: Marvin at April 2, 2012 02:01 PM

... given that lotteries are primarily used to generate revenue for states, might it not be fairer to just collect the revenue directly, as taxes?

So...what--now we tax the poor folk at 9% of their income, that being the per centage they're spending on this, and tax the rich folk at 0.001% of their income, that being the per cent they risk?

I can live with that....

Couple of true lottery stories from my time in Germany. 1) My wife had just arrived, and we had just finished a lunch in a gasthous near Prum (I never had a bad meal in a German gasthaus), and she wondered about the machine on the wall next to the door. It was a slot machine, of the pfennig/10 pfennig type ubiquitous in Germany, but it was turned off--we were the only diners in the place. The proprietor came over as I was explaining the slot (mostly identifying; she's not ignorant), and turned it on. My wife threw down three pfennigs, one pull at a time, and on the third pull, she won enough to pay for our meal.

2) At the commissary at Baumholder, my wife and I arrived at our car, having just finished our weekly grocery shopping, and spied a young wife with three toddlers and four or five grocery carts full of groceries in tow, struggling with her car--she'd locked her keys in it. The Sky Cops had arrived, also, but they were helpless to open the car without damaging it. The lady's car was the same make, model, and year as mine. Some of you may know that your car keys--and your push button combination locks--only have 10,000 combinations, then the keys and combinations repeat. So I tried my key in her door lock, and unlocked her car for her.

Wish I could get so lucky with Powerball.

Eric Hines

Posted by: E Hines at April 2, 2012 07:10 PM

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