Online Gambling

Is the Lottery a Tax?

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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.

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  1. 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.

  2. 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

  3. Of course it’s a tax. It’s a tax on stupidity. It’s the one tax the hits all the right people hardest.

  4. Repeat after me…Its not a tax if they can’t FORCE you to pay it!

  5. fish,

    using the example from the judge, How is excise tax on gas a tax then? They dont force you to buy gas.

  6. … people can live without gum…

    Says you!

  7. “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.

  8. The lottery is a voluntary poverty tax.

  9. 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.

  10. 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.

  11. 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.

  12. 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”?

  13. 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.

  14. 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.

  15. 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.

  16. You don’t want to pay no tax, see? And my numbers game is more. . . traditional, see?

  17. 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.

  18. 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.

  19. 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.)

  20. 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.

  21. 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.

  22. 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.

  23. Warren,

    Yeah, a sales tax might be even better. I dunno, I ain’t an economist.

  24. 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.

  25. 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.

  26. 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.

  27. 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.

  28. The lottery is a special tax for people who are bad at math.

  29. 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.

  30. 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

  31. 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’.

  32. 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.

  33. 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.

  34. “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)

  35. 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.

  36. Second the “smart judge” comment. The argument is interesting and has merit.

  37. 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.

  38. “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…

  39. 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.

  40. 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.

  41. The lottery is a donation to the government.

  42. 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.

  43. 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.

  44. 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.

  45. 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.

  46. 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.

  47. 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…”

  48. Is the Lottery a Tax?

    As others have said, not if you are not required to pay it.

  49. Is Shirley Jackson’s “The Lottery” taxing short fiction? Yes.

  50. …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.

  51. 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%.

  52. The welfare system would be self-supporting, if they let you buy lottery tickets with food stamps.

  53. 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.

  54. It’s a tax on people who were not paying attention in math class.

  55. 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.

  56. My cable company is a monopoly. Is the fee I pay them each month a tax?

  57. 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).

  58. 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

  59. 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.

  60. 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.

  61. 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.

  62. 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.

  63. 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.

  64. 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.

  65. “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.

  66. 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.

  67. 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.

  68. 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.

  69. 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.

  70. # 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?

  71. 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.

  72. 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.

  73. “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?

  74. 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.

  75. 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.

  76. Sign seen at convenience store:
    WE DO NOT CHARGE SALES TAX!!
    We just collect it.

  77. 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.

  78. 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.

  79. “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.

  80. 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.

  81. Then are franchise fees paid to gov’t also taxes, if they’re a percentage of the gross?

  82. 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.

  83. Gentlemen:

    Both of you are walking with the DUCKS. Consider this, As a Liquor Store owner, and selling Lottery (Scratch-offs and Pull-Tabs). My business is 100% obligated to pay the state for the scratch-offs and Pull tabs. Would there be an obligation to collect a sales tax on the Liquor, if the sale price of the Scratch-off and Pull-Tabs were to equal the prices of all product including Liquor, thus the Liquor would show a “0” retail cost. As we all know sales tax is based on the retail cost the costomer pays. Income tax is based on net income after expenses. If the scratch-off and pull tabs are place in inventory and sold through my companys POS system, then the goverment Duck has lost sales taxing authority concerning the Liquor.

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