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Taxation

Lotteries are just regressive taxes

I like The Tax Foundation. They advocate some really smart tax policy in the US. They also have a good blog that regularly keeps me up on US tax, which isn’t something I ever need to know in my job, but is interesting nonetheless. They blogged about one of their Background Papers titled Gambling with Tax Policy: States’ Growing Reliance on Lottery Tax Revenue recently:

Lotteries are a source of implicit tax revenue and exemplify poor tax policy for a number of reasons. They are not economically neutral; they are regressive; they lack transparency; they unnecessarily complicate the tax system; earmarked funds are often not used as promised; and lotteries are a business for the private market, not a state government.

I don’t think too many people view lotteries as taxes, but they should. Bad taxes. The part above about lacking transparency hits close to home, as Ontario has experienced scandal lately because a disproportionate share of winners are store clerks:

Roughly 60,000 lottery ticket sellers in Ontario, retailers won nearly 200 times in the past seven years, with an average prize of $500,000. A statistician with the University of Toronto called those numbers a statistical anomaly, saying there is a “one in a trillion, trillion, trillion, trillion” chance of that many retailers winning.

And my province isn’t the only one with a problem:

The head of B.C.’s Lottery Corporation was fired last week, three days after a scathing ombudsman’s report, which found that the Crown-owned corporation was not doing enough to prevent unscrupulous retailers from fleecing the system.

Privatization is one option the BC is looking into, and the pressure is growing in Ontario to consider the option as well. What do you think? Should the lottery be a tax tool used by governments or a revenue tool used by private (for-profit or not for-profit) organizations?