Powerballing the Poor Into Deeper Poverty

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Apparently Americans are ever so fond of their lotteries. We evidently spend over $70 billion for the pleasure of throwing our money at what amounts to pieces of paper that signify nothing, which is more combined than we spend on sports tickets, books, video games, movies or music.

After all, who doesn’t love a gambler!

It’s a harmless enough diversion, so it seems. Spend a couple dollars here or there for the chance at millions- or, in the case of the most recent Powerball- over a billion.

It doesn’t take much knowledge of math to appreciate that the odds of winning are effectively zero. Adding insult to injury, recent rules have taken the odds of winning the “big prize” from 1 in 175 million to 1 in 292 million, while decreasing the odds of winning a pittance of any prize (say, $4) to 1 in 25. Further rubbing salt into the wound, there is no guarantee that any one will actually win this time; something around a 14% chance or so.

*UPDATE*: It looks like the winning numbers were sold. Joy.

Even at the lowest payout, Powerball is a losing proposition. If one takes into account that the true payout would be around $584-$394 million (depending on one’s state), then the expected return is actually under the cost of a Powerball ticket- between $1.79 and $1.35. And even if you spent enough money to buy every combination and thus guarantee a win (which would be practically and logistically impossible to do), after the government takes its hefty pound of flesh you would actually lose money at the current payout (especially if more than one person won).

Of course, if no one wins, the layout will get bigger, which means more people will be enticed to play, which means more money will be spent on Powerball tickets. It’s almost like the house always wins or something…

Now, Powerball and its ilk can seem innocuous enough, but the sinister aspect of the lottery is that it is effectively a regressive tax on the poor. The reason for this is simple and twofold.

Firstly, given the “flat” cost of a Powerball ticket, the cost is higher or lower proportionate to the size of one’s income. If one makes $150,000 a year, blowing $900 on Powerball tickets is hardly a drop in the bucket. But if one’s income is under $20,000, that spending becomes far more significant.

Secondly, as far as spending on lotteries go, the poor and lower middle class make up the largest portion of spending on Powerball, et al. Thus, those who can least afford it end up spending a much a higher percentage of their income on lotteries and the like.

Of course, the lottery is not truly a tax in that it is not exactly coercive. However, it does actually represent a means of wealth transfer, and thus functions as a tax. It is regressive precisely because it disproportionately targets the poor and lower middle class. Studies have shown that households with less than $13,000 in yearly income end up spending 9% on average on lotteries.

Given that lotteries are almost exclusively governed and administrated by states, things like Powerball effectively become a way of raising revenue from those who can least afford it without having to pass unpopular new taxes. Schools are often the ostensible beneficiaries of this wealth transfer, but unfortunately many states end up using the lottery as a means to plug budget deficits; and since it is such an unruly source of revenue, the dream of striking it rich has to be constantly pushed and advertised. Jackpots must become bigger and bigger so as to sell more tickets, and all the while the worst off are the ones who end up footing the majority of the bill. The dark little secret, of course, is that states which use lottery funds in this manner (or sell the use of a lottery “because education!”) usually end up quietly decreasing education funding later on.

In fact, if you look at the bottom 20% of household incomes, once you account for federal, state and sales tax, the amount spent on the lottery actually ends up exceeding any of the other categories, thus making the lottery a great under the radar tax for this who pay very little or nothing in taxes at all.

Now, I’m usually loathe to tell others how they should or shouldn’t spend their money. But in this situation, it’s not so much about that, but rather the insidious injustice of how our government preys upon false hopes and avarice to plug budget gaps and regressively tax the poorest among us. It’s actually rather sickening, especially how so many of us are willing to play along and perpetuate this sort of societal dysfunction.

Think for a moment: government- if it is going to encourage morality at all- should be encouraging virtues. Virtues are what actually make great citizens, lead to a strong and cohesive society, and lay a foundation for a state in which goodness is pursued and the rule of law respected. But to encourage and even incentivize vices like avarice is so completely opposed to the perpetuation of a strong society that it sometimes seems almost like we are stuck in some kind reality show.

Do we really want our nation to collectively embrace avarice as some sort of harmless diversion at best, or laud it as some sort of potential good at best? Do we really want to be so short-sighted as to try and mitigate fiscal irresponsibility by encouraging vice and harming the least well off among us? Education is a good thing, but have we finally decided that the ends really do justify the means, even though the ends often end up getting the short end of the stick anyway?

The problem with Powerball isn’t the odds or even the gambling per se; rather, it encourages vice on a national scale and presents a false vision of hope to those who actually need it the most.

Consider this thought experiment: If you bought 3 Powerball tickets every week for $2 each ($12) and did this for 30 years in hopes of striking it rich, over that time period you will spend $18,720. However, if over the same period of time you invested the exact same amount of money at around 10% return, you would have nearly $105,000.

$12 dollars a week on a chance at getting rich doesn’t sound like much, but it is that kind of habit that often keeps people locked in cycles of low income. Hope can be hard to see, and the allure of the Powerball can be hard to ignore. But habits like these do not aid people towards improving their financial condition, and may in fact hinder them.

In the end, every time we participate in Powerball or any other type of lottery, we participate in our government’s wealth transfer from the poorest among us to those higher up the economic ladder. We also have a hand in ensuring that the poor stay poor by incentivizing bad economic habits and decisions.

In my opinion, it is shameful that our government participates in lotteries at all, since it directly encourages the types of societal dysfunction that sap the soul of any nation, instead of encouraging virtuous behavior as it should.   

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By deviantmonk

Jason Watson

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