As Mega Millions and Powerball jackpots grow, so do the numbers of people looking to buy a ticket. This is good news for the state treasury and the public education programs that it funds.
In many states, a large share of lottery proceeds help fund public higher education. During fiscal year 2020, non-tax state support for higher education — primarily from lottery proceeds — grew 9.1 percent nationwide to nearly $4.4 billion, according to the latest report on state higher education funding from the state’s Association of Higher Education Executives.
When Georgia introduced the lottery in 1993, the state also created the HOPE Scholarship Program, which provides partial scholarships to all Georgia students who meet a series of academic requirements. Big prizes mean big payments to the state; When the Mega Millions jackpot hit a record $1.5 billion in October 2018, Georgia earned $34.7 million for HOPE scholarships, pre-kindergarten programs, and early childcare.
The HOPE scholarship is funded entirely through lotteries, and experts say the program is very popular among politicians and residents of Georgia. Several other states — including Arkansas, Florida, Kentucky, New Mexico, South Carolina, Tennessee, and Texas — also offer lottery-funded financial aid programs.
These programs aim to help thousands of students afford college tuition each year, and many students are sure to benefit from financial aid. But the fact that the help comes from lottery ticket sales may disproportionately harm the very population the programs are designed to help.
Retro Lottery. Because tickets cost the same for everyone, low-income people, on average, spend a higher percentage of their income on the lottery than high-income people, said Celeste Carothers, associate professor of business and economics at the University of Tennessee in Knoxville. Texas lottery lesson.
“As we move from low-income areas to high-income areas, we don’t see a proportional increase in lottery sales,” Carothers said. “Low-income regions buy a disproportionate amount of lottery tickets.”
Ben Scafidi, professor of economics and director of the Center for Education Economics at Kennesaw State University, put it another way: When someone buys a lottery ticket, part of the ticket price feeds the ever-growing pot of potential winnings, and another part pays to administer the lottery. The remaining value is directed to government programs – in many cases, education. Although the lottery is not classified as a tax, it works like this. Experts call this an implicit tax.
“If you love to gamble and the lottery is the only way you can gamble, there is a very high tax rate built into this lottery,” Scavidi said. “In Las Vegas, if you spend a dollar on gambling, about 90 cents or so will be paid to players. But in the Georgia lottery, only 50 percent is paid — that difference we call the implicit lottery tax.”
Many people do not consider lotteries to be a tax-like source of income because buying lottery tickets is optional. Regardless of whether it’s called a tax, it works like a tax, said Charles Klotfelter, professor of economics, public policy, and law at Duke University.
Some people might say, “The lottery is not a tax because it is paid voluntarily.” And the way we usually look at it is that it walks like a tax, it looks like a tax — it’s a pretty big tax,” Klotfelter said.
The implicit tax on lottery sales is much higher than other state taxes, such as sales, income, and property taxes. On average, people with lower incomes pay a higher implicit tax on the lottery than people with higher incomes, according to Klotfelter.
“If you look at the average lottery tax amount someone pays on $25,000 income and compare it to someone who earns $80,000 — on average, that percentage goes down the higher the income scale,” Klotfelter said. “There is no exception to that. We have looked at lotteries of different genres at different times, and no matter what you look at, the part that looks like a tax in the lottery is a regressive tax.”
Essentially, low-income lottery players fund a large share of states’ educational grants.
The flip side of lottery-funded financial aid programs – the scholarship distribution – isn’t fair either. Skavidi describes the Georgia education lottery as a “double bounce,” because people with lower incomes contribute a larger portion of their income to the scholarship fund than higher-income people, but they don’t necessarily see larger payments.
In their research on the Georgia lottery, Scavidi and co-author, Ross Rubinstein, found that lower-income families were less likely to take advantage of the education lottery than higher-income families. The two found that the distribution of the Zell Miller scholarship in Georgia—which accompanies the HOPE scholarship—was particularly uneven. White students were eight times more likely than black students to receive a Zell Miller scholarship, and lower-income students were less likely than higher-income students to receive a scholarship.
“When we look at income, we find that students from families with incomes greater than $100,000 are significantly more likely to receive scholarships than students with household incomes under $30,000,” Rubinstein said.
The Georgia Education Lottery has served more than two million students since its inception and contributed $12.6 billion to higher education, pre-kindergarten programs, and early childcare. To qualify for the Georgia HOPE Scholarship, students must have graduated with a minimum 3.0 GPA from an eligible high school or accredited home study program and maintain a 3.0 GPA while in college, among other requirements. So far, the Georgia legislature has not passed any laws to specifically address the economic disparities perpetuated by lotteries and scholarships, according to representatives from the Georgia Student Finance Commission. However, the scholarship program has expanded its eligibility to include students pursuing associate degrees or certificates and those who obtain a GED to ensure that more students benefit from the program.
Making the lottery more equitable is not an easy task. Marketing lottery proceeds as a gift to higher education do not necessarily change ticket buying habits. In her research on the Texas lottery, Carothers found that educational messages about the lottery made sales of instant games such as scratch-off tickets somewhat more equitable among high-income and low-income clients but had no effect on jackpot games.
“What we have been testing is whether renaming the lottery as the ‘education lottery’ would evoke some altruistic sentiment among high-income areas and increase their proportional contribution to lottery tickets and instant games,” Carothers said. “We just haven’t seen it.”
Scafidi said that reforming the lottery and the financial aid programs associated with it will be difficult because they are so popular. He describes the Georgia lottery as a “third political track.”
“I think my family has spent a total of $4 on lottery tickets since we moved here, but we hope our kids get the scholarships… Even someone who may or may not have kids will get Hope or Pre-K, maybe not.” They still love it too, because they love to gamble,” Scavidi said. Politically, it is a difficult issue. Once you get it in, it seems to me almost impossible, politically, to get it out.”
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