The State as Bookie

Government lotteries and "voluntary taxation"

"In a fully free society, taxation—or, to be exact, payment for governmental services—would be voluntary."
—Ayn Rand, "Government Financing in a Free Society," in THE VIRTUE OF SELFISHNESS (New American Library 1964), p. 116.

"[A state run lottery is] the most painless form of taxation there is."
—California State Assembly Speaker Robert Moretti, a leader in the campaign against Governor Reagan's tax-limitation initiative last November.

Ten states in the United States have gone into the lottery business since New Hampshire began state-lottery operations in 1964. Although all of the original 13 colonies used lotteries to raise revenue, until the adoption of New Hampshire's lottery ten years ago, no state lotteries had been conducted since Congress shut down a corruption-riddled Louisiana game in the mid-1880's. A lottery measure has recently won approval in the California Assembly and, if it passes the California Senate, will be presented to voters for approval in the November general election. According to the LOS ANGELES TIMES, in addition to politicians such as Moretti, "The biggest private supporters of a California lottery appear to be East Coast lottery consultants and lottery equipment manufacturers." Besides California, some 14 other states are considering establishing lotteries. Moreover, New York, which started a state lottery in 1967, has since legalized the operation of City-run off-track horse-race betting parlors in New York City (the City gets a share of the take), and New York Governor Malcolm Wilson proposed in January that the state legally go into the "numbers" racket to raise additional revenue.

Proponents of the state as bookie ("Support your local state lottery") assert that legalized gambling is a good way to raise government revenue on a voluntary basis. In her essay, "Government Financing in a Free Society," Ayn Rand has suggested that a government lottery is one possible method of voluntary government financing in a free society. Ms. Rand also has proposed voluntary payment for "proper" governmental services (the police, armed forces and law courts) by means of an insurance premium on private contracts to secure the right to seek redress in a court of law; if the premium were not paid, such "contracts would not be legally enforceable." Ms. Rand's contract-insurance proposal is reminiscent of that set forth by Adam Smith in WEALTH OF NATIONS (Book 5, "Of the Revenue of the Sovereign or Commonwealth") ("The whole expence of justice too might easily be defrayed by the fees of court.").

It seems timely to consider the subject of taxes in REASON's April issue. Much is said these days about tax "reform." What is the libertarian view concerning taxation? And what stand should libertarians take toward current proposals for state entry into the lottery business?

In a free society, no person or institution—public or private—has the right to institute the use of physical force against another. It is basic that, in Rand's words, "the imposition of taxes does represent an initiation of force." Taxation is repugnant to the principle of free choice—it is inherently coercive, and is nothing more than a means of forcing people to pay for programs which they oppose. "Indeed," observes Murray Rothbard in FOR A NEW LIBERTY, "it would be a useful exercise for nonlibertarians to ponder this question: How can you define taxation in a way which makes it different from robbery?"

What about state lotteries? From a libertarian perspective, one must first inquire: Does the state-lottery measure propose to legalize only state-run gambling, leaving other gambling illegal? Presently, virtually every state in the United States has laws against private betting. However, instead of advocating the decriminalization of gambling, proponents of state lotteries have argued that the government lottery would make inroads on illegal gambling by hurting the illegal operations—by taking their customers away. Yet laws against gambling are not only plainly unenforceable (when is the last time you know of someone who made an "illegal" bet on a football game or played poker for money?), they lead to police corruption (the film SERPICO provides a graphic view of this) and are objectionable as patently improper attempts to regulate consensual adult conduct (persuasion, not coercion is the libertarian way to try to change another's consenting private conduct).

Despite the fact that gambling has remained illegal where state lotteries have been instituted, a LOS ANGELES TIMES survey—conducted across the United States last November—found that state lotteries not only have not reduced illegal gambling, but they have a high cost of administration and are "an unstable source of money which require constant promotion and variation to sustain public interest and have little meaningful impact on a state's total income." Indeed, there is no reason to expect the state to manage a lottery any more profitably than, say, the postal service. But the fact that state lotteries are not consistent big money-makers when private gambling is outlawed raises a doubt about the efficacy of a government lottery as a revenue-producing device in a free society, where all private consensual conduct—including gambling—will be allowed.

Moreover, the advocacy of a state lottery to voluntarily finance government raises a further question. If the purpose of the lottery is to voluntarily raise revenue for governmental services, why single out a lottery? New York State Governor Wilson already urges a state-run legal "numbers" game. But why stop there? Why not state-run brothels? Or a state movie theater featuring such high-grossing movies as DEEP THROAT? Or a state-operated "Nixonland" amusement park? Or even state-sponsored "contract insurance"? In short, is there any reason to believe that a state-run business—lottery or otherwise—will show a profit in competition with private enterprises?

What would happen if the means adopted to voluntarily finance government were unsuccessful? Would this lead to the withering away of the state? In POWER AND MARKET, Murray Rothbard discusses the workability of private-enterprise supply of necessary "governmental" services, supported by the voluntary payment of the customers for such services. Rothbard quotes the conclusion of "two of the very few economists who have conceded the possibility of a purely market defense": "If, then, individuals were willing to pay sufficiently high price, protection, general education, recreation, the army, navy, police departments, schools and parks might be provided through individual initiative, as well as food, clothing and automobiles." Hunter & Allen, PRINCIPLES OF PUBLIC FINANCE (Harper & Bros. 1940).

Dr. Rothbard's views on "free-market justice" are well known to REASON readers (see, e.g., March and May 1973 issues). In POWER & MARKET, Rothbard submits that a voluntary taxation system is impossible of attainment, because if people were "dissatisfied with the quality of defense they receive from the government, or with the price they must pay, they would elect to form a competing defense agency of 'government' within the area and subscribe to it," thus leading to the withering away of a central government over a given territory.

Even if no conclusive answers are available, the issue of voluntary taxation is a fascinating one for those who value free choice. For the time being, it is difficult to see much merit in either supporting or opposing current state-lottery proposals. On the assumption that a state lottery were able to raise significant sums of money, there is obviously no assurance that other taxes would go down. And it is difficult to be enthusiastic about the prospect of hiring new teams of bureaucrats to operate a new state-lottery. So, unless a state-lottery proposal were coupled with a plan to decriminalize gambling, rather than voting "yes" or "no" on a state-lottery measure, I suggest you take a cue from the League of Nonvoters and mark your ballot "none of the above."