Scratch and Win

What lottery ticket sales reveal about the American welfare system

In California, in Arizona, all across the U.S., in fact, people are feeling extremely lucky and optimistic. And also more desperate than ever. In other words, it's business as usual for humanity, and good times for America's lotteries. Forty three states, along with Puerto Rico, the Virgin Islands, and the District of Columbia, conduct lotteries now, and according to the Chicago Sun-Times, 17 out of the 41 lotteries that ended their fiscal year on June 30 established sales records in 2010. In addition, 28 of those states topped their earnings from the previous year.

The Sun-Times was quick to cast these stats as evidence of hard times. "Despite a struggling economy—or perhaps because of it—lottery ticket sales have surged across the country, including in Illinois." Three years earlier, The New York Times published a similar story. "Many state lotteries across the country are experiencing record sales, driven in part…by people…who are trying to turn a lottery ticket into a ticket out of hard times," it read. "Of the 42 states with lotteries, at least 29 reported increased sales in their most recent fiscal year. And of those 29, at least 22, including New York, New Jersey and Connecticut, set sales records."

If times are still tough in 2014, expect more of the same, because state lotteries break records even more frequently than MLB home run hitters did in the steroid years. In August, the Maryland Lottery announced that it had broken its all-time sales record for the 14th year in a row. Illinois has a nine-year streak going; Minnesota has a four-year streak on the line. Overall, U.S. lottery sales hit $58 billion in Fiscal Year 2010, up from $35.3 billion in Fiscal Year 2000.

Sales keep rising in large part because new states keep introducing the lottery, because states that have had the lottery for years introduce new ways to play and add retail outlets, and because people enjoy investing a few bucks in the far-fetched but irresistible dream of paying the government millions and millions in taxes.

Nonetheless, record sales are invariably characterized as indications of lost hope, financial desperation, another data point signaling the widening gap between the rich and poor. In America's least fortunate zip codes, the residents turn to scratchers for salvation. According to a 2009 article from an Illinois newspaper called the West Suburban Journal, the two neighborhoods with the highest unemployment rates also had the highest lottery ticket sales per capita. The article also features lengthy quotes from a convenience store clerk who says that some regulars spend $20, $40, $60 a day on tickets. In a 2010 article entitled "Hope and Hard Luck," a public policy organization called NC Policy Watch finds that ticket sales are briskest in North Carolina's  poorest counties and reports on one hard-luck case who estimates that he's spending $30 a day, or $11,000 a year, on Pick 3 tickets.

But if these stories paint a picture of economic desperation, they simultaneously suggest America's status as the unprecedented land of plenty too. In the midst of a recession, in its poorest neighborhoods, there are people who have enough resources to invest $20 to $60 a day in lottery tickets? I'll have a little of that recession, please!

While such individuals are no doubt outliers, and possibly mythical, harder evidence suggests that even in places under great economic strain, people aren't  yet so desperate that they're willing to sacrifice a $300 Mega Millions pipe dream for more utilitarian purchases, like eggs or Coca Cola. In North Carolina's Lenoir County, where NC Policy Watch reports that "23.5 percent of the population lives under the poverty line and nearly one in 10 people are out of work," per capita sales of lottery tickets in Fiscal Year 2010 were $423.92.

Much of that $423.92 per capita was returned in prizes, some was applied to the costs of running a lottery, and the rest was retained by state of North Carolina as what lottery officials call "profits" and everyone else calls "implicit taxes." Thanks in part to their monopoly status, lotteries are free to tax all who play them at extraordinarily high rates, and these rates are even more burdensome to poor players, whose ticket purchases comprise a higher percentage of their income than do those of more affluent players. In North Carolina, the implicit lottery tax rate was 43.5 percent in Fiscal Year 2010, meaning the state ended up collecting $184.40 per capita in taxes from some of its poorest citizens through the sale of lottery tickets.

At the same time, the federal government may be making those implicit taxes somewhat easier to absorb. In Fiscal Year 2000, U.S. lottery sales totaled $35.3 billion. In Fiscal Year 2010, that number had risen to $58 billion. During the same time period, annual expenditures for the Supplemental Nutrition Program, or food stamps, rose from $17 billion to $68.3 billion. Could the net increase in $51 billion food stamp dollars to spend be related to the $23 billion net increase in lottery ticket purchases?

You can't use food stamps to buy lottery tickets, but if your food stamp allotment subsidizes at least a portion of your grocery bill, you may be able to supplement your scratchers budget with a few bucks that might have otherwise gone to stocking up on Top Ramen. In 2009, while contemplating legislation that would have prohibited anyone receiving federal or state assistance from winning more than $600 in the state lottery, Tennessee officials conducted a review that found that "half of the people who receive food stamps from the state—294,805 ?individuals—buy lottery tickets." The bill didn't pass, but in 2010, Tennessee residents received both a record level of food stamp benefits and spent a record amount of lottery tickets.

Or to put it another way: Rather than indicating rising levels of desperation and homelessness, record-breaking lottery sales may be a sign that the nation's various social welfare programs are more robust than they're often acknowledged to be. Since the year 2000, inflation-adjusted income per capita has actually risen 5.7 percent, or roughly $2200, primarily because of an increase in non-taxable benefits provided by the government—aka Medicare, Medicaid, welfare, etc. Blessed with this tiny windfall, we set our sights on the kind of jackpots only Mega Millions can provide.

Contributing Editor Greg Beato writes from San Francisco.