Saturday, March 31, 2012

The Poor Bet

Lotteries are said to have begun in 1612 when King James created a lottery in London to aid Jamestown, the first British colony in America.

The Mega Millions lottery jackpot has risen to $640 million. In 2011, more Americans played the lottery than regularly attended church, bringing in $56 billion last year alone. Revenue from that pie is divided in three ways: About 60 percent goes to prize winners; 15 percent to retailers, marketing and operations; and 25 percent, or about $14 billion, goes back to the states for government services. After lottery winnings are paid out and administrative costs have been covered, the leftover money is transferred into state coffers to pay for state programs. This is a tax.

Two years ago The Consumerist suggested that poor people in the U.S. – those earning $13,000 or less – spend 9 percent of their income on lottery tickets.

Another study from Wired magazine suggested that on average households making below $12,400 a year spend 5 percent of their wages on lotteries.

A survey by Opinion Research Corporation for the Consumer Federation of America and the Financial Planning Association, revealed that one-fifth (21 percent) of people surveyed thought the lottery was a practical way to accumulate wealth. Cornell University economist Garrick Blalock told ABC News: "Lottery sales go up as the economy gets bad..."

Winning the lottery is yet another addiction that preys upon hopeless dreams of those trapped in poverty. Buying tickets helps keep them poor, which keeps them buying tickets. The more money they waste on the lottery, the poorer they become, making them even more desperate to keep playing. Studies in several states, including North Carolina and South Carolina, strongly indicate that poor people disproportionately purchase lottery tickets.

The lottery preys on the poor, the uneducated, the desperate and the hopeless… and the government runs and encourages it

Odds of picking the winning numbers for the Mega Millions are 1 in 176 million. If you bought up every single ticket combination that would cost $176 million. But you’d be guaranteed to win about $293 million after taxes. But there’s one big problem: First, if it takes five seconds to fill out each card, you’d need almost 28 years just to mark the bubbles on the game tickets. You’d also use up the national supply of special lottery paper and lottery-machine printing ink well before all your tickets could be printed out. Also, if just one other person picked the winning number, you’d end up losing $30 million all told.

Duke professor Charles Clotfelter is the author of a book on state lotteries. "It's very hard to say that these lottery dollars really make a difference," he said.

Overall, 27 states earmark some or all lottery revenue for education. In Colorado, the dollars go to environmental protection; in Pennsylvania, senior citizen programs; and in Kansas, some of the money pays for juvenile detention facilities. Many states bought into the lottery based upon the belief they were adding more and more money for education.In New York City the state started running the lottery in 1967 and has generated as much as $34 billion from lotteries, making lotteries a regressive tax, according to some. Because instead of using the money as additional funding, legislatures have used the lottery money to pay for the education budget and spent the money that would have been used had there been no lottery cash on other things. Public school budgets, as a result, haven’t gotten a boost because of the lottery funding.

In Virginia, lottery tickets have a tag­line that says “Helping Virginia’s Public Schools” and more than $5 billion in lottery proceeds have gone to public education in the last 24 years, about $450 million annually. But, according to the Virginian-Pilot, the money is used by state lawmakers to cover education expenses rather than extra money. And when it is time to cut budgets, education doesn’t get spared. “That’s been a slow and insidious movement that’s been going on for a few years now,” Kitty Boitnott, president of the Virginia Education Association, was quoted in the Virginian-Pilot, as saying. “It’s a big ruse, and I don’t believe Virginians, in general, are aware of it.”

In Maryland, more than $519 million of lottery proceeds was contributed to the state in 2011, and that was used for programs including education, public health, public safety and the environment, according to the Maryland Lottery Web site. The lottery has given more than $12 billion to the state since 1973. Yet, still, the state government is considering raising taxes in order to keep the state’s highly regarded public education system funded at record levels.

In Washington D.C., the lottery since 1982 has contributed more than $1.6 billion to the city’s general fund for programs including schools, recreation and parks, public safety, housing, and senior and child services. Still the city can’t meet its education needs.

In Texas, where the lottery was sold to the public, as in other places, as a fun game that would reap big rewards for public education. According to the American-Statesman, in 1996, lottery proceeds paid for about two weeks of schooling for Texas students. By 2010, the money covered barely three days.

In California last year, just one percent of that's state's $53 billion budget for K-12 education came from lottery funds. "The net effect of say earmarked education lottery revenue on education expenditures is close to zero," said Clotfelter

In 2010, states collected an average of $58 per capita in implicit tax revenue from their lottery programs. Delaware, which had the heaviest reliance on lottery revenue, collected a stunning $370 per capita.

In the UK research showed skilled manual workers were the most likely to play draw based games - such as Lotto - with more than 67 per cent in this category taking part once a month or more compared to 47 per cent of managerial and professional workers. And an analysis of where Lottery money for good causes was distributed found "insufficient funding" was being invested back into Britain's deprived communities in spite of high rates of play amongst less affluent players. Researchers said Blaenau Gwent in South Wales was the poorest area in the UK, according to one set of deprivation measurements, but ranked in 133 place when it comes to the amount of lottery funding it receives. Bridgend, also in South Wales, was ranked second using the same set of deprivation scores, but only in 224th place in terms of the amount of lottery funding it receives. The public funding package for the 2012 Olympic Games which relies heavily on the National Lottery, will exacerbate this problem by reducing the amount of money available to projects in deprived areas.

Socialists don't object to the lottery from any sour-puss point of view or moral high ground. We object to it as a manifestation of capitalism, as we object to all manifestations of capitalism.

As far back as 1732, lottery taxation lead to this poem by Henry Fielding :
A Lottery is a Taxation,
Upon all the Fools in Creation;
And Heav’n be prais’d,
It is easily rais’d,
Credulity’s always in Fashion;
For, Folly’s a Fund,
Will never lose Ground;
While Fools are so rife in the Nation.

1 comment:

ajohnstone said...

So the jackpot has been finally won by a few lucky punters. Had just one won the whole pot, and invested the $300 million conservatively, Steve Fazzari, an economics professor at Washington University in St. Louis, said you could have expected to collect a nice "salary" of about $7 million "after taxes every year for the rest of your life and the rest of the life of your heirs."

But lets put that into perspective. There are hundreds of billionaires out there whose wealth makes yours look like that of a pauper. 30 years ago, the total after-taxes take of $300 million would have been more than enough to land a single winner on the magazine's annual list of the 400 richest Americans. In 2011, you would have needed $1.05 billion to tie for last place.

A $100 million isn't even two-tenths of 1 percent of Gates' estimated $61 billion net worth. Using Fazzari's math on conservative investing, the Microsoft co-founder can expect to bring in an annual salary of $1.4 billion — or 14 times your share of the historic jackpot.

Want to live the high life like the mega-rich then be prepared to pay $88 million apartment at 15 Central Park West. Or a top-of-the-line Gulfstream G650 jet ($64 million, excluding pilot, maintenance, hanger and fuel costs) and a place to fly it, your own private island (let's call that $25 million even). But if you are a sports fan you will fail to afford The Los Angeles Dodgers just sold for $2 billion, besting the NFL record price of $1.1 billion for the Miami Dolphins. A luxury box will be your limit.