There is a massive $1.3 billion drawing in most states this week – and the winning lottery ticket will be worth $1.3 billion!
But before you run out and buy one more ticket, please know that we already know who won Powerball… as MarketWatch reports:
But let’s not focus on the “winner” here because the real winner of the lottery system is not the person who buys the winning ticket. The real winner is the government, which taxes the winner. The government automatically withholds 25%, but the winner will be bumped into the highest marginal tax bracket in the case of the lump sum. In addition, the player will very likely pay a state tax (usually 4% to 9%) and perhaps even local taxes.
With those tax rates, $1.3 billion in winnings will instead by closer to $416,000,000. Roughly 68% of all winnings will be immediately sent to Washington, D.C. and local taxes. That is a shockingly high number!
Importantly, the revenue from the lottery is itself a type of tax often termed the “poor tax,” given that the lottery has a disproportionately negative impact on the poor. Typically, about 25% of the revenue goes to fund state programs, but according to Duke University economics professor Charles Clotfelter, author of “Selling Hope: State Lotteries in America,” there’s little evidence that this has any meaningful positive economic effect. Sadly, a whopping 15% of the revenue goes to financing the marketing of this gigantic economic drag. So the lottery system actually looks a lot more like a massive back-door tax scheme than anything else.
Not only is the lottery system a giant scheme by government to take advantage of poor people, it takes advantage of people’s irrational understanding of money. We all have different levels of behavioral biases, but it’s hard to resist the incredible stories on the media whenever someone wins a lottery and their life changes.
But your odds are worse than 1 in 292 million. You would be just as likely to win a contest which pulled one name out of a hat that consisted of every U.S. resident.
In the mean time, local lottery programs spend upward of 15% on marketing, and states never see the type of investments promised during the creation of their lottery. They have no positive economic effect, and the lottery is simply a way for government to get it’s hand on more money to waste. And their marketing is directed at the poorest among us who should be saving money carefully instead of buying wasteful lottery tickets.
Here’s a perfect example of the media filling up people’s minds with dreams of untold riches:
The real winners of the Powerball lottery are President Barack Obama and the bloated Federal government!
Are you going to buy a ticket this week anyway? Please leave us a comment (below) and tell us what you think.