Is the Lottery a Hidden Tax?


The lottery is one of the most popular forms of gambling in the world. In 2021 Americans spent upwards of $100 billion on tickets, generating revenue that states use to fund public projects. But how meaningful that revenue is in broader state budgets, and whether it’s worth the costs to people who don’t win, are questions that deserve some scrutiny.

A lottery is an arrangement in which prizes are allocated by chance, usually with a fixed prize pool and a predetermined amount of money paid out to winners. The word is believed to have originated in Middle Dutch, where it is a contraction of the Old Dutch noun lot (“fate”) and the verb lote (“to fall”). The idea behind the lottery is that anyone who has a chance at winning can get what they want—whether that’s a million dollars or a new home or a nice vacation.

The earliest lotteries in the modern sense of the term were probably held in 15th-century Burgundy and Flanders with towns attempting to raise money for fortifications or aiding the poor. Francis I of France approved the establishment of a state lottery in several cities in the early 1600s. Other European states used lotteries to finance private and public ventures, including the Ventura in 1476, a game of chance that awarded land and slaves for military service and other accomplishments.

Until the late 1960s, lotteries were considered a way to fund public services without raising taxes. This was especially true in the immediate post-World War II period, when states needed to expand their array of social safety nets and other amenities. But that arrangement eventually broke down, as states began to have trouble covering the cost of their public goods and services.

In response, many turned to the lottery, which was widely seen as a “hidden tax.” A favored argument for the lottery’s popularity was that people would be willing to hazard a trifling sum for the chance of considerable gain. However, the reality is that only a small percentage of people actually win the big jackpots. The rest are left with a feeling of emptiness.

In addition to the big jackpots, many lotteries offer other prize categories, such as cars, electronics, and cash. Some even have a “force majeure” clause, which allows the lottery to skip a drawing when unforseen events prevent them from holding the lottery as scheduled. These clauses are typically included to protect the lottery from liability for natural disasters or other extraordinary, unforeseen circumstances.