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Few people like taxes. Most view them as a necessary evil. Some even view taxation as a form of theft. However, if we are going to levy taxes at the very least they should be effectual in generating revenue. Otherwise, the taxing of income, property, and inheritances are pointless. There must be some utility in this imposition for it to be justifiable. One salient target for raking in tax revenue is the taxable proceeds from gambling.  Which has served as the impetus for the liberalization of gambling regulations across the United States. Despite rates of taxation on lotteries and casinos being higher that of other industries gambling brings in only modest revenues. Rates on casino revenues ranging from 6.75 percent in Nevada and to the exorbitant rate of 50 percent in Illinois. Only $ 8 billion in tax revenue was collected by the states in 2011, this is out of an approximately $68 billion industry if the estimated revenues of tribal casinos are accounted for. If one was to consider the proportion of every dollar spent on lotteries that end up being recouped by the state, it would be tempting to assume that it was a better means of generating revenue. Especially when in 2018, $27.6 billion in revenue was generated by state and local lottery games.

Here’s a breakdown of how the portion of each dollar spent on lottery games retained in state taxes (Courtesy of the MERCATUS Center).

  • 20 % of every dollar spent is going towards administrative costs of maintaining and administrating the lottery.
  • 50 % is returned to the players in the form of prizes.
  • 30 % is retained by the state in the form of tax revenue.

8 thoughts on “The Anatomy of Lottery Revenue

    1. I have a strong interest in gaming law, economics, and the psychology of games of chance stemming from my brief stint working at a tribal casino.

      Yes, agreed making illegal for you and I to make a wager is criminal and a callous cash-grab on the part of the states. Generally disguised as an attempt to save us from moral vice. It’s as stupid and pointless as keeping prostitution illegal or criminalizing smoking a plant.

      These are activities where the externalities are easily internalized by private individuals.

      Liked by 1 person

        1. That was truly an interesting paper. It would have never occurred to me to draw lessons from the legalization of sports betting to Marijuana.

          I suppose I never noticed the numerous similarities.

          Interestingly enough, looking into New Jersey’s legal battle with sports betting exposed me to a legal concept I was previously unfamiliar with, that being the anti-commandeering doctrine. Certainly a concept I will continue to explore.

          Liked by 1 person

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