Public Policy and the Lottery

A lottery is a method of allocating something whose supply is limited by chance. It is used to determine a winner among equally competing candidates for a prize or a job, to assign seats on a train or plane, to fill vacancies in sports teams, and even room assignments at school or college. The process of drawing lots is also sometimes used to select candidates for political office.

The word lot is derived from the Latin lupus, meaning “fate” or “luck.” The casting of lots to determine fate and fortune has a long history (it appears in the Bible). In the United States, state lotteries are thriving, with Americans spending an estimated $100 billion on tickets each year. But their public and private histories have had a sometimes rocky ride, particularly in the wake of the Depression and World War II.

State lotteries are a classic example of public policy made piecemeal and incrementally. Usually, a government legislates a monopoly for itself; establishes a public corporation or agency to run it; begins with a modest number of relatively simple games and, in response to continual pressures for additional revenue, gradually expands the number of available games. By the time a state lottery is fully established, it typically has its own very specific constituencies: convenience store operators; lottery suppliers (heavy contributions by these firms to state politicians are often reported); teachers (in those states where lottery revenues are earmarked for education); and of course state legislators, who become accustomed to the extra revenue.

One of the big reasons that lottery revenues are exploding is that people love to gamble. They have a basic inextricable urge to try to win, and the lottery is a very convenient way to satisfy that desire. But there is much more going on with state lotteries than just this inexorable human impulse.

The first big thing is that the state and federal governments get a good chunk of every ticket sold. The winnings from the game are distributed between commissions for retailers and the overhead of the lottery system itself, as well as state government programs that support infrastructure, education, and gambling addiction initiatives. The remaining percentage is the jackpot prize, which is advertised heavily and grows to an apparently newsworthy amount each time a drawing does not produce a winner.

Many players are surprised to learn that their lump-sum lottery payments may not be what they expect, because they include taxes and fees. Fortunately, there are ways to mitigate the impact of those costs, including buying an annuity that allows you to receive payments over time instead of a lump sum. This is especially popular for those who want to avoid paying large taxes at once, or who are looking for a more flexible investment option. You can also sell your lottery payments, but this is generally a more complicated process that requires professional advice.

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