- Baptist Press - https://www.baptistpress.com -

ANALYSIS: States lose big with lotteries, according to economic studies


NASHVILLE, Tenn. (BP)–Citizens in Tennessee will decide Nov. 5 whether to approve a state lottery, and many Southern Baptists are among those working to defeat the proposal. While there are a number of valid moral arguments against a lottery, there also are compelling economic reasons to oppose a lottery.

Earlier this year, the Tennessee governor and likeminded politicians claimed the state faced dire economic woes in order to convince Tennesseans of the need to implement a state income tax. Research suggests that if a state lottery is put into place, those claims of financial gloom likely will become reality. Moreover, the state income tax that most Tennesseans opposed might be unavoidable as a result of the revenue deficits likely to occur if a lottery is implemented.

The true economic nature of lotteries is often obscured by the allure of big jackpots and claims that a lottery will cure state revenue shortfalls. To the contrary, lotteries do not create new money for states, but only change the spending habits of lottery players. Money previously spent on goods and services is used to buy lottery tickets instead. The result is that enormous sums of money are taken out of circulation in the economy and redistributed to a few designated individuals and agencies, including the lottery bureaucracy.

The harm is not just the direct loss of these dollars but also the loss of the multiplication effect that benefits individuals and businesses and generates sales tax collections when those same dollars are exchanged over and over within the economy.

Moreover, the National Center for Policy Analysis notes that states keep only about a third of the money collected through ticket sales. The remainder is paid out in prize money and in support of the bureaucracy that superintends the state lottery.

Essentially, for Tennessee to realize $200 million dollars from a lottery, about $600 million dollars will be taken out of the economy, meaning the state’s businesses will forego at least this amount in sales (not counting the multiplication effect). Additionally, cities, counties and the state lose tax revenues that would have been collected if that money had been spent on goods and services.


Using information published in 1991 by Mary O. Borg, Paul M. Mason and Steven L. Shapiro in their study on the economic consequences of state lotteries, the Gambling Free Tennessee Alliance estimates that Tennessee can expect to lose from $20 million to $66 million in local option taxes alone. This does not mean that the state “nets” the difference between the lottery receipts it keeps and the loss of tax revenues. The true effect is a loss of an estimated $666 million by individuals, businesses and state and local governments in order for the state to keep $200 million.

Ultimately, lotteries and other forms of gambling substantially alter the free-market flow of currency exchange in state economies with disastrous effects. In Georgia, sales and property taxes have continued to rise despite a lottery. And in Mississippi, the state has not met its budget for the past three years even though it has casino gambling.

Indeed, in 1996, Money Magazine reported that since 1990 per capita taxes in lottery states have risen more than three times as fast as in non-lottery states. Interestingly, though states with lotteries collect more taxes, these same states spend less on their schools than states without lotteries.

At the least, schools in lottery states typically see no budget gains. The New York Times reported in 1998 that as a rule, states rarely use lottery proceeds to supplement existing budgets for programs such as education. Instead, every $1 received in lottery funds usually results in a $1 reduction in general revenues going to education. So, the boon to education forecast by Tennessee lottery proponents will likely be a bust and the lottery even may be a detriment for Tennessee schools.

The negative impact of taking such huge sums of money out of circulation among individuals and businesses for limited distribution to a few prize winners, the lottery bureaucracy and designated government use is indisputable. Individuals lose, the economy suffers, state revenues suffer and key programs such as education suffer when lotteries are implemented.

In 1999, Alabama voters soundly rejected a lottery referendum. Earlier this year, the North Carolina legislature showed leadership by defeating a bill that would have authorized a lottery referendum. On Nov. 5, Tennesseans will have their turn to take a common sense stand.