April 13, 2006

Lotteries Don?t Keep Taxes Low

by Alicia Hansen

Many people believe lotteries help state governments keep taxes low. They’re wrong on two counts.

First, as we’ve written before (here and here), the lottery itself is a tax. No state or federal government classifies lottery revenue as tax revenue, but they should. (Our Tax Freedom Day calculations, as well as our calculations of state and local tax burdens, rely on government definitions of tax and income from the Bureau of Economic Analysis (BEA), and since the BEA does not consider lottery revenue to be tax revenue, our calculations of Tax Freedom Day and state and local tax burdens also do not include lottery revenue.) 

Second, states without lotteries tend to have lower state and local tax burdens than states with lotteries. As our recently released Tax Freedom Day report shows, of the eight states without lotteries, seven have state and local tax burdens below the U.S. average of 10.6%.

State and Local Tax Burdens in States Without Lotteries, Calendar Year 2006

Meanwhile, states that enacted lotteries the earliest—in the 1960s and 1970s—tend to have higher-than-average state and local tax burdens. Of the ten earliest states to enact lotteries, only three have tax burdens below the national average. Maine and New York, two of the earliest lottery states, have the first and second highest state and local tax burdens in the country.

State and Local Tax Burdens in the First Ten States to Enact Lotteries, Calendar Year 2006

Legislators and voters looking for a way to keep state taxes low should consider the tried and true methods:  fiscal discipline, spending cuts and low tax rates—not lotteries.

Read the full Tax Freedom Day study here.