Thursday, February 23, 2006

Gambling on Your Future

The news is all over TV and the papers: eight employees of a Nebraska meat-packing company who parlayed their money to buy Powerball Lottery tickets finally hit the jackpot in last week’s $365-million take. Their share, after taxes, works out to a little more than $15.5-million apiece.

No doubt their stroke of luck (the odds of winning were in 146,000,000:1) will inspire more mathematically-challenged members of society to try their luck at the lottery, either individually, or by pooling their money with friends.

Lottery fever has assaulted American society, ever in the rush to achieve success, feeding the get-rich-quick schemers, and appealing to the get-something-for-nothing dullards. In researching this piece, I Googled “lottery,” and got pages and pages of results for states’ games of chance around the country, a few compilation sites that cover all of these, and more disturbing URL’s popped out promising ways to “cheat the lottery” before you sleep tonight.

Now, that’s socially-redeeming content.

MSN did a story about who plays and who pays. The heaviest lottery players -- the 20% of players who contribute 82% of lottery revenue -- disproportionately are low-income, minority men who have less than a college education.

According to the MSN piece, close to 50% of American adults spend $45 billion annually on 35,000 lottery games. It's not news when someone earning $7 an hour scrubbing toilets parts with a buck for a ticket -- but it's news if she wins.

Or if eight meatpackers pooled their pay to play.

But the reality is that society also pays when the poor play the lottery, according to the National Coalition Against Legalized Gambling. What is actually happening is "the government undercutting what government’s role should be,” which is encouraging people in financial straits to be responsible with their money, not snatching it from those least able to afford to lose it.

Sure, there's an argumentm 'Hey, if people want to spend their entertainment dollars on the lottery, who’s to say they shouldn’t?'

Well for starters, each dollar paid into the lottery is a dollar taken out of circulation in the economy—plus no sales tax revenues are generated by the purchase of lottery tickets.

The problem is the culture of getting rich quick is supplanting tried and true methods of creating wealth that have been around since Ben Franklin’s time. This has resulted in a pessimistic outlook on the chances of building wealth, which gives way to the cheap-thrill expectation of someday just winning wealth. The Opinion Research Corporation recently revealed that while 26% of us believe they could build a $200,000 nest egg in their lifetime, 21% think playing the lottery is the best strategy for feathering their nest.

My friend, Eva Rosenberg, the “Tax Mama,” recently dissected the argument for and against dropping money into the lottery after a family in California won $84-million in that state’s lottery. Jack pot? Perhaps, but what about the rest of the poor stiffs who played and lost?

Assuming they spent (squandered) $5/week on lottery tickets, what could have been gotten for $260 over a year? Socking it away in an IRA or Roth IRA not only would be a sure-thing with compounding interest, but there are huge tax benefits associated with that strategy, vs banking on lottery winnings. And after the IRS takes it’s 50% of the cash, most winners are boosted into the highest tax bracket for that year.

That’s a fun surprise the following January.

The politicians who pimp the lottery probably have the most to be ashamed of. In Texas, the state lottery was sold to the public by painting a warm, fuzzy picture of alleged benefits for school children. If lottery sales proceeds are such a boom to school districts, then why are our school systems still scrimping for income, and why have our property taxes to fund public education continued to rise?

Sure there are multiple symptoms of these problems, but the lottery has not been the panacea that the Legislature would have you believe. From the Texas Lottery’s own website are these figures:

Since the first ticket was sold in 1992, the Texas Lottery has generated more than $13 billion for the state of Texas. Since 1997, all Texas Lottery proceeds have gone to the Foundation School Fund to support public education in Texas.
The Texas Lottery has contributed more than $8 billion to the Foundation School Fund, and of that total, over $1 billion was contributed in FY '05.

To put things in the proper perspective, the state education budget for the 2006-07 biennium is a few hundred-million dollars north of $36-billion. So, when you realize that the typical slice of the Lottery revenue pie yields only 28-cents for education for every dollar sunk into the Texas Lottery, and the lottery is really only contributing 1/36th of the cost of public education…it sort of takes the patina off the rationalization of gambling as a boom to education funding.

A final coda to this saga is what’s going to happen at that meat packing company in Nebraska…where the owner is now facing replacing up to eight of his employees. One thing is probably certain: it’d be pretty tough to go back to making sausage with $15.5-million, regardless of how you came into the money.

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