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Is the Lottery a Tax?
This week the North Carolina Court of Appeals heard arguments against the state's lottery, which critics say amounts to an unconstitutional tax. In 2005, when North Carolina became the last state on the East Coat to establish a lottery, the state legislature allocated 35 percent of the revenue from ticket sales to education programs. The rest of the money covers administrative costs (8 percent), vendor payments (7 percent), and prizes (50 percent). The lottery's supporters call the 35 percent spent on education a "profit," while opponents say its purpose and the broad base from which it's raised indicate that it's akin to a sales tax. The distinction matters because the state constitution requires three different readings on three different days in each house of the legislature, with the votes on the second and third readings recorded, to create a new tax. The lottery bill, by contrast, was hurried through in shady circumstances that led to criminal convictions for several people involved, including the former House speaker, who pleaded guilty to corruption.
The Tax Foundation, which filed a friend-of-the-court brief in the case, argues that treating the lotteries like taxes would make the process of adopting them more transparent and stop politicians who support them from claiming to be fiscally conservative friends of the taxpayer. During the appeals court arguments, the foundation reports, a judge posed a question that went to the heart of the state's argument for continuing this pretense: "If the state took over all the gasoline stations in the state and operated them, would that convert the existing excise tax on gasoline into something else, 'not a tax'?" In both cases, the state is creating a legally enforced monopoly, such that anyone who wants to buy the product has no choice but to pay the extra charge, which makes the price higher than it would be in a competitive market (especially if you consider the lottery's egregiously low payout percentage). While it's true that no one is compelled to buy a lottery ticket, a fact the lottery's supporters cite in arguing that it's not a tax, the same could be said of numerous purchases subject to sales or excise taxes. The purchase may be voluntary, but payment of the tax is not, once the purchase occurs. The tax on gum or cigarettes is still a tax, even though people can live without gum and cigarettes.
|5.25.07 @ 2:47PM|#
Though a case could be made that lotteries are a "dumb tax," the fact is that a tax is involuntary and participation in the lottery is not.
Eric|5.25.07 @ 2:50PM|#
Agreed. The lottery commission can do whatever they want with the income. If it upsets lottery players that much, just stop buying tickets and it'll chang.e
|5.25.07 @ 2:51PM|#
Of course it's a tax. It's a tax on stupidity. It's the one tax the hits all the right people hardest.
robc|5.25.07 @ 2:56PM|#
fish,
using the example from the judge, How is excise tax on gas a tax
then? They dont force you to buy gas.
stephen the goldberger|5.25.07 @ 3:03PM|#
"They dont force you to buy gas."
they force you to pay the tax when you purchase gas. The income tax
is a tax but one isn't forced to generate an income. You are forced
to pay it when you trade your labor for cash money.
thoreau|5.25.07 @ 3:11PM|#
The problem with the lottery is not that it's a tax, because
it's either not a tax or it's a voluntary tax (depending on whether
you consider "voluntary tax" an oxymoron or not).
The problem is that it's a legally guaranteed monopoly.
|5.25.07 @ 3:15PM|#
Lottery - (n) A tax on people who are bad at math.
In all seriousness though, I think it makes a difference whether or
not, and to what extent, the government is prohibiting private
lotteries while it runs its own.
If not, this seems like one of the least objectionable ways for the
government to get revenue.
If so, then it is still a coercive action taken by the government
in the economic realm in order to get revenue. I'm not sure I'd
call it a tax. But I don't think prohibiting people from providing
consenting adults with alternative means of gambling is, in
principal, preferable to a tax.
Grotius|5.25.07 @ 3:15PM|#
If a lottery is a tax it is the best sort of tax possible - a voluntary one. So I consider a lottery very friendly to the taxpayer.
|5.25.07 @ 3:21PM|#
It does lead to an interesting question...when government runs a for profit business which would likely be taxed if run privately (such as state liquor stores), is there any differentiation between "profit" and "tax rate"?
Aaron|5.25.07 @ 3:22PM|#
Just to defend the huddled masses yearning to be
millionaires...
the human mind doesn't treat money the way economists do. Playing
the lottery is rational if people have baseline levels of need that
aren't likely to be met at their current income. See "patch choice
theory" in evolutionary biology. If a bird will starve at the
steady food patch it will go to the riskier patch even if the mean
rate of return for the risky patch is lower.
I'm not saying this is what poor people at the lottery are doing,
necessarily, only that we can't conclude that buying lottery
tickets are irrational solely because the mean rate of return is
lower.
ed|5.25.07 @ 3:25PM|#
Lotteries are nefarious. When Florida instituted theirs, they didn't allow random, terminal-generated number picks ("quick-picks") for the first year or so. So people got used to playing the same numbers over and over again, week after week. Eventually these suckers...er, players grew afraid not to play every week for fear that their memorized numbers would eventually come up, and if they didn't play that week they'd have to kill themselves. Which would be funny in a tragic sort of way. The lottery administrators did this intentionally, I'm sure, to get people hooked. Of course, officially, they are against "gambling." Unless the Seminoles are running the joints.
|5.25.07 @ 3:27PM|#
I think they do have a valid intellectual argument. The key here is that the state prohibits anyone else from selling tickets of chance. That takes away the "voluntary" argument. I think some of you are getting caught up on the product being sold. If the state did the same thing with coffee makers- for example, banning the sale and then selling them themselves with a hefty markup that provides for the state treasury, would we not consider that a tax? Take away the absolute restraint of trade the state imposes on this product, and then I'd agree it isn't a tax and in fact completely unobjectionable.
|5.25.07 @ 3:31PM|#
You don't want to pay no tax, see? And my numbers game is more. . . traditional, see?
|5.25.07 @ 3:33PM|#
The tax on gum or cigarettes is still a tax, even though
people can live without gum and cigarettes.
There it is people, right there.
Jebus Kay Riest. Not RTFA is one thing, but not even reading the
post, WTF?
If the lottery isn't a tax than neither is the TAX on cigarettes.
You don't want to pay it? You don't have to buy it. For that matter
property TAX isn't a tax either since no one is forcing you to buy
a house. For that matter, if the lottery isn't a tax because you're
not forced to buy tickets then, just about any TAX isn't a tax
because you can always refrain from whatever it is that's being
taxed.
We use to apply the duck test to these things. But I guess too many
people can't seem to distinguish between a mallard and a
malamute.
All that being said, I still think it's the best tax going. I
wouldn't mind at all if the only taxes were on sex, drugs, and
gambling. I know libertarians bristle at the underlying social
engineering. But I'd rather tax vice than capital any day of the
week... and twice on Sunday [rimshot]
Thank You,
Wow wwh wha what a great audience.
Grotius|5.25.07 @ 3:34PM|#
FatDrunkAndStupid,
Me buying them is voluntary. The issue looks different depending on
where one is in the transaction.
_________________________________________
Let's also not forget that opposition to lotteries has a religious
aspect to it as well.
|5.25.07 @ 3:38PM|#
If a lottery is a tax it is the best sort of tax possible -
a voluntary one. So I consider a lottery very friendly to the
taxpayer.
It would be even better if the government were in the business of
selling crack cocaine. (I was going to say selling tobacco, but the
cartel that was set up by the settlement of the states' lawsuits
against the tobacco company is close to being exactly that.
Sometimes reality is just too absurd to parody.)
|5.25.07 @ 3:40PM|#
Of course, officially, they are against
"gambling."
Only in the way that a mobster is against a competing numbers game
taking place on his turf.
Grotius|5.25.07 @ 3:43PM|#
Seamus,
If the government were to regulated and sell crack I guess that
would be an improvement on the current drug war. Similarly if the
government must exist (which it likely must) then a voluntary tax
via a state monopoly is a good way to go.
|5.25.07 @ 3:45PM|#
a voluntary tax via a state monopoly is a good way to
go.
I would prefer a high sales tax (say 100%) to a state monopoly.
Grotius|5.25.07 @ 3:48PM|#
Warren,
Yeah, a sales tax might be even better. I dunno, I ain't an
economist.
|5.25.07 @ 3:58PM|#
The lottery is not really, strictly, a tax on the ignorant.
There are several known cases where playing the lottery can lead to
positive expected value results.
The most common is the rolling jackpot phenomenon. This is when no
one wins the grand prize for a few weeks, the prize accumulates. At
a certain point it becomes a profitable, if highly volatile
investment.
On a more subtle note, there are some studies that show certain
numbers are picked more frequently by the betting public
(birthdays, perfect squares, primes, etc...) if one avoids these
numbers you also increase your potential payout.
|5.25.07 @ 3:58PM|#
So, let me see if I read this correctly. The state lotto pays
out 50% of it's income as winnings, about 15% in overhead and the
remainder is effectively a tax payout to the government.
Just speculating here but if a "numbers runner" were to voluntarily
pay the state govt. 35% of his income, I wonder if he would have a
case against being shut down.
stephen the goldberger|5.25.07 @ 4:02PM|#
it's not actually a tax because you making the transaction of
one dollar for a .00000001% chance at a million dollars. The
voluntary trade is between the individual and the gov't.
When you buy gas the trade is between the individual and the gas
station, and the gov't gets a cut of the action in the form of the
tax.
In the lottery, the gov't is the one selling the product, i.e. a
chance at more money.
stephen the goldberger|5.25.07 @ 4:04PM|#
so in fact i'd argue the lottery is more akin to the post office, an gov't institution which provides a service to its citizens in exchange for money.
George F. Haley|5.25.07 @ 4:07PM|#
I hope I'm quoting this correctly, I'm new to this:
" the human mind doesn't treat money the way economists do."
It's really more "the human mind doesn't treat money the way
now-discredited theories of value predict it would," since
economists, you know, real economists and not Marxists or whoever,
derive value from marginal utility.
"Playing the lottery is rational if people have baseline levels of
need that aren't likely to be met at their current income."
Yeah, I'm not quite sure I follow that. I think it's more "playing
the lottery is rational if you enjoy gambling" From what I
understand, gambling is pretty enjoyable; it causes the same kind
of dopamine floods you see in illegal drug use. Sure, you lose all
your money in the long run, and often faster than that, but,
eh...you don't walk out of the movies with any more money than you
came in with, either.
Now, sure, that enjoyment might well have something to do with not
having your head around what a mook's game the typical "daily
number" lottery is, and so that may well be fairly described as "a
tax on people who are bad at math," but when the jackpot reaches
truly life-changing levels, as it often does in the weekly state
games, the sheer fun of day-dreaming about what you'd do with the
several million dollars you have a tiny but real chance of winning
may well be worth a dollar.
|5.25.07 @ 4:19PM|#
This really doesn't matter except in NC because of their laws on
how to pass "taxes."
But what struck me was this quote from one of the Judges: "If the
state took over all the gasoline stations in the state and operated
them, would that convert the existing excise tax on gasoline into
something else, 'not a tax'?"
Its exceptionally rare to find a judge that smart, please find out
this ones name and give him or her a Reason Foundation
award!!!
Skallagrim
Damon Gentry|5.25.07 @ 4:22PM|#
I always argue with a co-worker about the term 'voluntary' in
regard to econonic decisions. With a sales tax, you choose (or
volunteer) to pay the tax when you make a purchase. (The lottery is
akin to a sales tax.) With a property tax, you choose to pay the
tax when you purchase property. With an income tax, you pay the tax
when you choose to work. (Note: In Oregon, you can make a decent
living on the welfare roles.)
I do have one question about the N.C. lottery. If 35% of the 'take'
is being taxed by the state, are the winnings also being taxed by
thi lucky ticketholders? If so, sounds like another 'double
tax'.
|5.25.07 @ 4:29PM|#
Its exceptionally rare to find a judge that smart, please
find out this ones name and give him or her a Reason Foundation
award!
Skallagrim wins the thread.
|5.25.07 @ 4:32PM|#
Despite all the cute, completely-missing-the-point "tax on the
stupid" comments, I think there's an interesting issue here. As
it's currently run, 50% goes to payout, 15% goes to costs, and the
remaining 35% is either "profit" or "tax". There's no sales or
other tax associated with it.
It seems unfair to characterize the whole 35% as "tax" because if
it was a private company running things ostensibly there would be
some profit. But it seems unfair to characterize none of it as
"tax" because if it was a private company running things ostensibly
the state would tax each ticket sold (probably at a higher rate
than the sales tax - perhaps 15-20%).
I think in cases where the government collects no tax but keeps all
the profit from an enterprise, some portion of that profit should
legally be designated as a "tax" for legislative review/enactment
purposes.
|5.25.07 @ 4:42PM|#
"Playing the lottery is rational if people have baseline levels
of need that aren't likely to be met at their current
income."
"Yeah, I'm not quite sure I follow that. I think it's more "playing
the lottery is rational if you enjoy gambling" From what I
understand, gambling is pretty enjoyable; it causes the same kind
of dopamine floods you see in illegal drug use. Sure, you lose all
your money in the long run, and often faster than that, but,
eh...you don't walk out of the movies with any more money than you
came in with, either."
No. No. That is not THIS argument. Imagine a mimimum wage earner
arrested for felony DWI. The DA offers to recommend a $10,000 fine
and probation but no jail time. But if he cant pay in cash by his
trial date next month, he'll serve a 6 year sentence. For the next
few weeks, it's quite rational for him to invest any extra dollars
on lotto tix (or whatever other longshots --- the best bets he can
find that payout at least 10,000-1) even if said bets pay less than
even money.
The point being, if he plays it "smart" & saves up those extra
dollars, he will certainly go to jail. But if he gambles he might
avoid jail and be able to work for the next six years (or someone
might avoid bankruptcy, or avoid getting his legs broke by Guido,
or avoid the IRS taking his kidney, or whatever other hypothetical
pitfall you prefer)
|5.25.07 @ 4:44PM|#
I think in cases where the government collects no tax but
keeps all the profit from an enterprise, some portion of that
profit should legally be designated as a "tax" for legislative
review/enactment purposes.
That should only apply (if such an idea is even workable) when the
state declares it has a monopoly over the enterprise in
question.
|5.25.07 @ 4:48PM|#
Tommy_Grand
You make the case as well as it can be. But you'll never make it
pay against state lottery odds. Even if he goes to jail, its not
like his money is worthless to him. Sure coming up with the 10k to
avoid jail is worth a considerably more risk than even money, but
not these odds.
|5.25.07 @ 4:58PM|#
"Sure coming up with the 10k to avoid jail is worth a
considerably more risk than even money"
That's all I'm saying. A "losing" bet (less than 100% return) is
sometimes rational when you need the money pronto. The factors: how
much do you need? how fast? are better investments available that
could get it in time? For many of us, these are the issues that
*might* justify a high interest loan. But for people who can't
borrow...
|5.25.07 @ 5:00PM|#
I think there is an important distinction here. A sales tax is a
separate payment made when you purchase a thing. The thing and its
purchase would still exist even if there were no tax assessed. For
a lottery, on the other hand, the purchase price of a ticket *is*
the "tax". If we identify the act of buying a lottery ticket with
paying a tax, then there is no transaction that exists
independently of the tax. A tax is an assessment on
something, and that something should have its own existence
independent of the tax itself.
I'm not sure if this makes sense, and I haven't thought it through
yet, so any interesting counterarguments would be welcome.
|5.25.07 @ 5:10PM|#
Don't be a chucklehead Chuck
Sorry for the cheap shot, it just had a ring to it and I couldn't
resist.
The lottery does exist independent of the tax being collected. This
would be more apparent if:
a) Private businesses were allowed to offer them and the tax had to
be calculated and paid to the state.
b) The tax wasn't applied and the ticket cost 65 cents.
c) Instead of collecting the tax the money was put into higher
payouts.
The fact that the state doesn't itemize how it spends your lottery
dollar, doesn't mean they aren't taxing it. They just don't like
calling it a tax.
Timothy|5.25.07 @ 5:22PM|#
An income tax is less distortionary to consumer preference than an equal-yield sales tax, generally speaking. Of course, that's in chalk-board world, in the real world things are way more complicated because of the tax deduction structure and whatnot.
Robert|5.25.07 @ 5:26PM|#
I think all of you are missing an important point. What was the
legal situation before this state lottery was enacted in 2005? Were
private lotteries legal in that state? I bet they weren't.
So what did the act do? It didn't create a monopoly on lotteries
per se in the sense of restricting the hitherto legal business to
one player. Rather, it made a single exception to a prohibition
that probably existed for a long time.
Looked at in that light, how can anyone say that state lottery net
revenues constitute a newly enacted tax? It's true that money is
coming in to the treasury from an additional source, but it's not
from a tax on an existing business.
|5.25.07 @ 5:27PM|#
If the government were to regulated and sell crack I guess
that would be an improvement on the current drug war.
If the government ever got into the business of selling crack, you
can be sure that they'd hold a monopoly, would charge monopoly
prices, and would go after competing drug dealers just as
vigorously as they do now. In other words, the drug war would
continue.
Grotius|5.25.07 @ 5:42PM|#
Seamus,
For the vast majority of drug buyers (assuming that the setup
wasn't something like the old marijuana stamp system) it would
probably be a better situation though. As long as we're only
concerned with utilitarian outcomes even a flawed government
monopoly seems - up to a point - better than the current way of
doing things.
|5.25.07 @ 5:55PM|#
First, I second what Warren noted above - didn't any of the
first commenters bother to read the post?? I mean the "voluntary"
objection was dealt with in the post so you can't really raise it
again unless you distinguish the gas tax example (and really all
taxes are "voluntary", as others have pointed out).
so in fact i'd argue the lottery is more akin to the post
office, an gov't institution which provides a service to its
citizens in exchange for money.
stephen the goldberger, that example doesn't get the state off the
hook either. In the case of the government selling a monopoly
service (e.g. post office) the price of that service to the public
should reasonably reflect the costs of providing the service. If
the USPS earned a profit and turned over 35% of its revenues to
generally fund the US Treasury it would most certainly be a tax in
all but name. Another example might be a regulated monopoly - if
that business then charges prices that support general revenue
payments to the state (apart from its regular income tax on
earnings) it would also be a tax. If Comcast (pre-satellite
competition) charged $200 for digital cable and sent $100 directly
to the state or local government, would it not, in any real sense
of the word, be a tax?
There are two issues here, as I believe thoreau pointed out: one is
the state monopoly on a service (lottery) and the other is what the
state does with the money it gets from offering that service. If it
simply covers administrative costs and payouts then there would be
no tax issue. But since it also provides revenue to the state for
other services it is most certainly also a tax in all but name. The
mere fact that the monopoly itself provides the means to charge the
artificially high prices necessary to raise general revenue without
actually calling it a "tax" ought to be meaningless in any
discussion of the economic realities (apply the "duck test" as
Warren put it).
An apt analogy here in Oregon (and in several other states) is to
the state run liquor stores. Here the state has a monopoly on the
sale of distilled beverages and that monopoly allows it to charge a
price that generates about $120 million of revenue for the state's
general fund (above and beyond any administrative and service
related costs) - hence it is the same thing as a liquor tax.
However, because of the monopoly it doesn't have to call it a
liquor tax. Another way to tell that it is in reality a tax is that
if the state wanted to allow private business to sell liquor while
still raising the same revenue it would clearly have to institute a
tax - the same is if the state decided to allow private businesses
to sell lottery tickets.
So the real question is whether a state offered "service" uses its
monopoly power to charge a high enough price to fund the general
treasury. If so, then whether it calls it a tax or not, it plainly
is one.
|5.25.07 @ 6:58PM|#
I don't think of the lottery tickets as gambling. I think of
them as buying a week's worth of daydreams.
"If I win on Saturday, I'm going into the boss's office
and..."
Guy Montag|5.25.07 @ 7:42PM|#
Is the Lottery a Tax?
As others have said, not if you are not required to pay it.
|5.25.07 @ 8:29PM|#
...while opponents say its purpose and the broad base from
which it's raised indicate that it's akin to a sales
tax.
I like the TV program "Maverick", especially the episodes with Bret
(played by James Garner). In last night's episode Bret explains to
his gold-digging companion that he gambles to make a living but
only swindles swindlers.
Sales tax should be illegal. Gambling should be legal. Problem
solved.
|5.25.07 @ 8:46PM|#
Bg--
In all seriousness though, I think it makes a difference
whether or not, and to what extent, the government is prohibiting
private lotteries while it runs its own.
In the "old days", the 'numbers game' generally paid out 60%... The
State only pays 50%.
Ron Hardin|5.25.07 @ 9:46PM|#
The welfare system would be self-supporting, if they let you buy lottery tickets with food stamps.
|5.25.07 @ 9:56PM|#
George sez "since economists, you know, real economists and not
Marxists or whoever, derive value from marginal utility."
I hadn't heard that the Nobel folks had awarded a prize for
discovering the actual utility formula. All of the "real
economists" I know tend to shy away from utility theory once they
get past Intermediate Micro theory.
dc|5.25.07 @ 11:22PM|#
Forget games-of-chance-as-taxation, what about taxation-as-games-of-chance? I want to play the tax-man double or nothing on a hand of blackjack.
Jerry|5.26.07 @ 1:16AM|#
To say lottery is a voluntary tax is like saying that state income taxes are voluntary as well, because nobody is forcing you to actually go out and get a job, one can still try to live from private gifts etc. (of course this might not be a smart idea, but that is besides the point).
John C. Randolph|5.26.07 @ 2:23AM|#
It's not a tax, because it's not mandatory.
It's wrong for it to be a state monopoly, though. Either allow
gambling, or don't. Private casinos offer a far better payout
rate.
-jcr
Paul|5.26.07 @ 2:31AM|#
using the example from the judge, How is excise tax on gas a
tax then? They dont force you to buy gas.
No, they don't force me to buy gas-- or earn a living, for that
matter. But I can't buy gas without paying the tax, and I can't
earn a living without paying an income tax. Get it?
Now, if I can buy gas somewhere and 'opt out' of the gas tax, now
you're talking.
|5.26.07 @ 3:12AM|#
It's not a tax, because it's not mandatory.
Jesus, here we go again... did you bother to read any of
the previous comments, much less the post itself? That objection
has been both raised and addressed more than once, originally in
the post itself.
What you missed in a nutshell: gas tax not mandatory - it is still
a tax. No tax is "mandatory" unless you choose to engage in the
taxed activity, which might include things like earning income,
buying booze, or perhaps buying lottery tickets.
|5.26.07 @ 3:41AM|#
My cable company is a monopoly. Is the fee I pay them each
month a tax?
bill, I suggested an answer to that very question in an earlier
comment.
In the case of the government selling a monopoly service (e.g. post office) the price of that service to the public should reasonably reflect the costs of providing the service. If the USPS earned a profit and turned over 35% of its revenues to generally fund the US Treasury it would most certainly be a tax in all but name. . . . If Comcast (pre-satellite competition) charged $200 for digital cable and sent $100 directly to the state or local government, would it not, in any real sense of the word, be a tax?
So if the cost (plus a reasonable return) to Comcast of providing,
say, the digital cable, phone and internet package is around $100
and that is what you pay, then no, it isn't a tax. If instead they
were to charge $200 with the extra $100 going straight into the
local government coffers, then it is identical to a 100% tax on
cable services regardless of what it is called. Likewise, if the
state sells you a lottery ticket with a reasonable (that is, a cost
or competition based) price of 67 cents but charges you a dollar,
then it is the same as a 50% tax on lottery tickets.
Since the state is running the lottery it is easy for them to build
the tax into the price and avoid calling it such, but that hardly
changes what it really is.
|5.26.07 @ 4:12AM|#
I'm surprised no one has mentioned the word donation. It seems
to me that the tax - yes I think it's a tax - could be marketed as
a donation. "35% of all proceeds help fund education" or
somesuch.
No quite as abrasive as the word tax.
Guy Montag|5.26.07 @ 7:56AM|#
Glover,
Actually, that is more accurate than the word tax, non-abrasive or
not.
Brian Courts,
Talk about a failure to read! Where can we go to opt-out of paying
the gas taxes? Well, you people, I can go to the military exchanges
and pay almost the same price without State and local taxes (I
don't think they began forking those over, could be wrong).
I am not forced to purchase a lottery ticket when I buy a magazine,
but I am forced to pay sales taxes on magazines. See? See how easy
this concept is to grasp? In one store both lottery tickets are
sold and magazines. You have a CHOICE to buy the ticket or not, but
you have no choice in paying a tax when you purchase the
magazine.
Guy Montag|5.26.07 @ 8:26AM|#
Perhaps the example they used is not the greatest. Yes, they
created a monopoly by legalizing one segment of gambling only for
the State. No, they did not create a tax by creating a monopoly
from formerly illegal activity. Tossing in the scare word "tax" is
kinda like Radley calling M113s "tanks".
Of course, I would rather the State not engage in this business and
let it be a legal business for whomever wishes to engage in it
properly, but that dream is as far away as a secure US border.
Robert|5.26.07 @ 3:23PM|#
"As long as we're only concerned with utilitarian outcomes even
a flawed government monopoly seems - up to a point - better than
the current way of doing things."
I'm surprised that point -- that having one legal seller is better
than having a legal zeropoly (no legal sellers) -- is even
controversial, but I have to keep making it. Not only that, but for
the great majority of people (because they want only to be
customers, not suppliers), unless the setup is really abusive, the
difference between one legal seller and zero legal sellers is far
greater than that between open competition and one legal
seller.
bill|5.26.07 @ 4:01PM|#
Brian,
But they aren't saying a portion of the cost of the ticket is a
tax, they are saying the whole dollar you spend for a ticket is a
tax.
|5.26.07 @ 4:20PM|#
Talk about a failure to read! Where can we go to opt-out of
paying the gas taxes?
Uh, no Guy, I think it is your failure to understand the argument,
not my failure to read.
Let's try again. You can avoid paying the gas tax by not buying
gas. If you choose to buy gas you must pay a certain percentage (or
per gallon, whatever) to the state. You can avoid the lottery "tax"
by not buying lottery tickets. If you choose to buy a lottery
ticket you must pay (built in to the price as I explained) the
lottery ticket tax. Part of your purchase price is the legitimate
cost of the service. The part that goes to fund other stuff the
government wants to fund is a tax in every way but nominally.
As in the example I gave, if the "market" price (i.e. the price
that would prevail if the lottery were open to competition) is
below the price charged by the state then the additional part is
the same as the additional part you must pay to buy a gallon of
gas, or a bottle of booze, or anything else to which the state
attaches its appetite for cash.
Maybe I didn't really explain it well enough but then again before
you accuse someone of not reading you might want to make more of an
effort to understand what I was saying. Anyway, the point is
bascially this: there is a legitimate price for any service
(presumably even the legitimate price is too high for any number of
reasons when there is a monopoly but that is a secondary issue)
that covers the cost of providing that service and perhaps a
reasonable return in the case of a regulated private monopoly (e.g.
utilities, cable companies, etc.). If the price of a service is
above that legitimate price and that extra is used to fund the
government, it is a tax. It can be explicitly so, as in the gas
tax, or sales tax, or it can be implicit as in the case of the
state run liquor stores or the lottery. Either way the effect is
the same - a surcharge above and beyond the "market" or
"legitimate" or whatever you want to call it, price that is used to
fund government activities not related to the provision of the
service or product in question.
Once again, when the state, as it does here in Oregon, runs a
monopoly liquor store and charges prices high enough to fund state
and local governments to the tune of $120 million a year, is that
not exactly the same as a tax on liquor? Let's say the state liquor
store changes it's pricing policy to price the booze at the same
price the market would support and then makes up the difference
with an explicit tax on the sale of each bottle. Nothing changes
at all except that part of the price you pay is now
explicitly labeled a tax. Would you argue that simply calling it a
tax or not makes any real distinction? Of course not (I hope) yet
this is precisely the same situation as the lottery ticket sales.
If the state lowered the price to 67 cents and charged a 50 % tax
to get a dollar a ticket either way, it is no different than what
goes on now.
Either way, with appologies to Warren, if it looks like a tax and
walks like a tax and quacks like a tax, chances are, it's a
tax.
|5.26.07 @ 4:22PM|#
But they aren't saying a portion of the cost of the ticket
is a tax, they are saying the whole dollar you spend for a ticket
is a tax.
bill, if so then it seems clear that they are wrong about that. But
even if they are wrong to make that argument (and they
are) there is still a tax built in to lottery ticket sales so the
end result ought to be the same. However, they would certainly be
better off not claiming the whole price is a tax since that would
clearly undermine the legitimate case that can be made.
|5.26.07 @ 5:09PM|#
But they aren't saying a portion of the cost of the ticket
is a tax, they are saying the whole dollar you spend for a ticket
is a tax.
bill, while I admit I haven't read anything beyond Jacob Sullum's
original post on the issue, it actually seems from his post that
you're incorrect about that (though perhaps there is some other
information you've read that makes it more clear).
The lottery's supporters call the 35 percent spent on education a "profit," while opponents say its purpose and the broad base from which it's raised indicate that it's akin to a sales tax.
From that sentence it appears opponents are indeed challenging the
35 percent that is used to fund education as a tax and not
the entire price of the lottery ticket. That would seem to make
more sense since it is the funding of non-service related state
activities through sales proceeds (whether lottery, liquor, gas
etc.) that would make something essentially a tax.
|5.26.07 @ 6:31PM|#
# Glover | May 26, 2007, 4:12am | #
# I'm surprised no one has mentioned the word
# donation. It seems to me that the tax -
# yes I think it's a tax - could be marketed
# as a donation. "35% of all proceeds help
# fund education" or somesuch.
Aren't donations to government tax-deductible? If lottery tickets
are seen as donations/deductions, might you perhaps kick yourself
down into a more reasonable bracket by purchasing a bunch of
lottery tickets? What's the worst that could happen: that you would
WIN?
|5.27.07 @ 3:29PM|#
The problem is that it's a legally guaranteed
monopoly.
If I, or the local Italian Business Consortium, were to run a
lottery with say, 60% of revenue going toward payouts, the gov't
would be on us like stink on ... Without the monopoly, competitioin
would drive the goivernment right out of the lottery (I call it The
Fantasy Windfall Game) rccket in short order.
Let's break down the morality of the government running a gambling
operation.
1) Is gambling immoral?
A) Yes, it should be illegal in all it's forms.
B) Sometimes, so only the government should operate it for noble
causes. They could then ensure that problem gamblers do not ruin
their irresponsible lives by playing it. The government would ID
aforementioned irresponsible gamblers by ???.
C) This is a bullshit question! If an activity harms no innocent
bystanders, the government should get just BUTT
OUT and let the market seperate the winners and
losers.
If you selected C, go to the head of the class.
|5.28.07 @ 10:14AM|#
The question before the Court is not whether NC should have a
lottery. The question is does a lottery have to go be subject to
the legislative process that the state constitution mandates when
dealing with taxes.
In North Carolina, the liquor stores are run jointly by state and
county by governments. (N.B. Under the NC constitution couties are
units of the state government.) They certainly call a part of the
sales price of liquor a tax.
Under that point of view, the profit is a tax and should go through
the process that the constitution requires when dealing with taxes.
If the NC lottery gets under that bar, look for the Legislature to
pass more "revenue opportunities" using that back door.
Having said that, I think that government run lotteries are
abomanations on at least two leves. First, the deductive artument:
If gambling is not immoral, then anyone should be able to run a
lottery. If gambling is immoral, the government certainly should
not be doing it. Second, the inductive argument: Lotteries often go
hand in hand with corruption. The goat rope legislative that
rendered the NC lottery is a prime example. I cannot imagine that
the corruption that fathered the lottery will not follow it all of
the days of its life. The NC Court of Appeals and the NC Supreme
Court have a chance to strangle that child in its crib. They should
not miss that opportunity.
Robert|5.28.07 @ 10:36AM|#
"I think that government run lotteries are abomanations on at
least two leves. First, the deductive artument: If gambling is not
immoral, then anyone should be able to run a lottery. If gambling
is immoral, the government certainly should not be doing it.
Second, the inductive argument: Lotteries often go hand in hand
with corruption. The goat rope legislative that rendered the NC
lottery is a prime example. I cannot imagine that the corruption
that fathered the lottery will not follow it all of the days of its
life. The NC Court of Appeals and the NC Supreme Court have a
chance to strangle that child in its crib. They should not miss
that opportunity."
So you actually think it's better to have all lotteries
illegal in NC than that the state be allowed to run one?
Remember, the choice you prefer -- anyone should be able (i.e.
allowed) to run a lottery -- is not on the menu. Why do you think
that of the choices that are on the menu -- status quo (all
lotteries illegal) vs. state-run lottery -- that having
nobody allowed to run a lottery is preferable?
|5.28.07 @ 9:25PM|#
Jacob had one of the better lead in to the question being concise and informative. The comments attest to that. I wish he had defined shady better (he did point out the jail terms of politicians) for it was very interesting how the assembly got the lottery passed after dismissing the assembly while two Nay votes were out of town and then with a tie vote broken by the Lt. Governor. Shady? Dark as a moonless night and crooked as a snake thru a maze is more like it.
Robert|5.29.07 @ 12:10PM|#
If shady is what it takes, I'm all for shady. Any other attitude is like complaining that the other driver made an illegal lane change to avoid colliding with you, or at least to get out of your way.
Alan|5.29.07 @ 1:44PM|#
Sign seen at convenience store:
WE DO NOT CHARGE SALES TAX!!
We just collect it.
Amy Phillips|5.29.07 @ 7:25PM|#
The lottery isn't actually run by the state government. It's run
by a corporation (The largest in the US is GTech Corporation, which
has been the subject of numerous kickback and other scandals in
recent years. But there are many other, smaller corporations that
run other state lotteries) that holds a monopoly license from each
state to run that state's lottery.
So it's not a case like the Post Office where the government
collects all of the money and dumps it into general revenue. It's a
case where consumers are buying from a third party, a private
company, which pays 35 percent to the state, pays out 50 percent in
winnings, and keeps the rest for overhead and profits.
Seems to me that since consumers are buying a lottery ticket from a
private corporation, the lottery is more like all of the other
business transactions mentioned above than it is like a transaction
between an individual and the government. In which case, it seems
like it should be treated like a tax.
|5.29.07 @ 8:15PM|#
JFC BC, whatever
Huh? Ok Guy, we'll put it in your terms:
Where can we go to opt-out of paying the gas taxes?
Where can I purchase a lottery ticket without paying a (roughly)
50% "tax" on the (real) value of the ticket to the state?
I am forced to pay sales taxes on magazines. See? See how easy
this concept is to grasp?
And I am forced to pay the 50% "sales tax" on lottery tickets...
(not really since I don't buy them, but just for rhetorical
sake...).
You're right - very easy to grasp. JFC indeed.
Robert|5.30.07 @ 1:37AM|#
"Seems to me that since consumers are buying a lottery ticket
from a private corporation, the lottery is more like all of the
other business transactions mentioned above than it is like a
transaction between an individual and the government. In which
case, it seems like it should be treated like a tax."
But in adopting that scheme, where the status quo had been no
lottery at all, was the legislature enacting a
tax? Could the same not be said of the franchise fee in the state's
franchising a concession stand at a state fair, where previously
there'd been no fair or no concessions?
What about the relationship between the state and a turnpike
authority, or between a state's turnpike authority and rest stop
franchises? I can't see adoption of any such arrangements as
enactment of a tax.
Amy Phillips|5.30.07 @ 11:40AM|#
After Prohibition was lifted, many states made the sale of
alcohol legal, issued a limited number of licenses to sell alcohol,
and made one condition of those licenses that licensees must remit
to the state a certain percentage of the sales price of any alcohol
they sell. We call that an "alcohol tax."
Marijuana is currently illegal. If the state legislature made
marijuana legal, licensed a limited number of private companies to
sell it, and made a condition of that license that the licensees
must give 35 percent of the price of the drug to the state, would
we not call that a "marijuana tax?"
Similarly, the state has made lotteries legal, licensed a limited
number of private companies to sell lottery tickets (the limited
number being one, possibly two or three in some states), and
mandated that those companies remit a large percentage of the
ticket price to the state. I'd call that a "lottery tax,"
regardless of the legality of lotteries prior to the issuance of
the licenses.
Robert|5.30.07 @ 12:29PM|#
Then are franchise fees paid to gov't also taxes, if they're a percentage of the gross?
Amy Phillips|5.30.07 @ 4:31PM|#
It's possible. I'd want to read the definitions given in the state's law before making a determination. In any case, I'm certainly not opposed to the idea of more public scrutiny of legislation governing franchise fees or any other payments from private citizens to government agencies.
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