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June 2, 2005
Why I Oppose the Lottery
By: Representative Paul Stam
Editor:
The House voted 61-59 for a state lottery. I was one of the six members from Wake County who voted “no”. Why?
A lottery exploits the poor and gullible. Those with incomes under $20,000 per year play and pay much more than others. It is the most regressive tax possible on those who are not good at arithmetic.
Massive amounts of false and deceptive advertising are necessary to sustain a lottery. The lottery commission will breathlessly advertise a million dollar prize. After a winner is declared the Commission will pay it at $50,000 a year for 20 years. If I pulled that stunt as an attorney I would be reprimanded or disbarred since the present worth of such a prize is much less. The House bill does not allow for TV or radio ads but everyone knows that a lottery without advertising will not survive. In short order we will be inundated with ads enticing us to invest in foolishness.
The lottery bill is not about freedom. Gambling remains illegal under the lottery bill which creates a state run business which the sponsors declare to be criminal if run by you.
Easy access to gambling through a state lottery means that citizens will gamble a lot more. Studies consistently show that 5 percent of the adult population (and 10-15 percent of teenagers) will become compulsive gamblers. In one study, 86 percent of compulsive gamblers had committed a felony to obtain money to gamble. I estimate that North Carolina will have between 150,000 to 200,000 compulsive gamblers within 10 years. Bankruptcies, crime and poverty will follow. Taxpayers will be asked to clean up the mess.
A lottery hurts retail businesses. Lost sales mean fewer businesses and fewer jobs. Every dollar that goes to a lottery is money that cannot be spent somewhere else - or invested.
A lottery creates a climate which is conducive to organized crime. Once our poor neighbors start gambling via the lottery they will soon discover that the Mafia offers better odds, unsecured credit, and no pesky reports to the IRS for the occasional winner. The effective rate of return on bets with organized crime is negative 6%. But with the lottery the effective rate of return is negative 65%. Where do you think our gamblers will turn when they run through their bank accounts?
Putting the state in the gambling business sends the wrong message to children. Parents should raise their children to study hard, work hard, and learn to manage money. States with lotteries are saying to children "Don't worry about work and savings. Gamble, hit the jackpot, and you'll be rich!" Is this the message you want the state to send to your children?
One of the cruelest of lottery hoaxes is that it will pay for “education” for the “chirrun.” A lottery that produces what its proponents predict will only pay 4˘ on the dollar of the education budget. It will be the work of an afternoon for budget writers to reduce the state appropriation to match this by simply understating one time the cost of living.
The central premise of this year’s lottery is that large sums of money are going to other states and that we ought to capture it. For a time I accepted this premise while I stood against the lottery for other reasons. But as I checked the facts I discovered that this central premise is not true.
There are two basic economic reasons: administrative expenses and income taxes. The lottery has administrative expenses that will go out of state to GTech and other vendors. But, more importantly, one must consider this question after the imposition of income taxes.
A lottery is almost unique. Most economic activity has a rough equivalence between income and expenses with the difference being profit. But under our tax laws, lottery losers are not able to deduct their losses for federal income taxes. But the winners are, by definition, in the highest income brackets and taxed at the highest rates with only a trivial amount of losses to deduct against their winnings. The effect is that a North Carolina lottery actually loses about $210 million more to Uncle Sam than we are now losing by playing the Virginia lottery. This more than offsets any loss to Virginia from the convoys to Martinsville. We see the cars. But we should also be able to visualize money flowing out of state when taxpayers put a $.37 stamp on their IRS returns with a bigger check (or a request for smaller refund) inside.
Under any reasonable assumptions we lose more money to other states by having a North Carolina lottery. Conversely the taxpayers of other states are subsidizing us by our not having a lottery. Since most states have a lottery we are currently the winners of this game.
The attached chart demonstrates the amount of money that North Carolina’s economy and North Carolina gamblers will cumulatively lose by this new lottery. Since this net loss is disproportionally from the poor (and near poor) we can now estimate the amount of money that will be transferred from the poor, which I will describe as approximately the 4th and 5th quintile of income, to the rest of us. It is several hundreds of millions of dollars. My estimate is $500 million. A lottery is a real disaster for the 40% of the people in lower income groups. Please note that the assumptions used in calculating this chart are from lottery proponents and uses the figure of $1,800,000,000 that they say will be wagered in year 3 of the lottery in North Carolina
Rep. Paul Stam
District 37 including
Apex, Holly Springs, Fuquay Varina
and Southern Wake County
pauls@ncleg.net
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