SOCIO-ECONOMIC EFFECTS OF NATIONAL LOTTERY

Socio-Economic Effects of National Lottery



Socio-Economic Effects of National Lottery

National Lottery Socio-Economic Effects

Following lines describe socio-economic effects of national lottery.

Economic Effects

Proponents of lotteries usually use economic arguments to justify their positions. They point out that lotteries provide state governments with a relatively easy way to increase their revenues without imposing more taxes (Gerstein, et al, 1999). The games are financially beneficial to the many small businesses that sell lottery tickets and to larger companies that participate in merchandising campaigns or provide advertising or computer services (Grinols, 2004). In addition, lottery advocates say, the games provide cheap entertainment to people who want to play, while raising money for the betterment of all.

Pallanti, Ross & Hollander (2006) mention that lottery opponents also have economic arguments. They contend that lotteries contribute only a small percentage of total state revenues and, therefore, have a limited effect on state programs (Kindt, 2004). Lotteries cost money to operate and lure people into parting with their money under false hopes. In addition, opponents contend that those targeted by lotteries come particularly from lower income brackets and may not be able to afford to gamble.

The Division of Lottery Money

Lottery money can be categorized as sales, prizes, administrative costs, retailer commissions, and state profits. The sales amount is the total amount taken in by the lottery. In general 50% to 60% of U.S (Smith, 1952). lottery sales are paid out as prizes to winners. Administrative costs for advertising, employee salaries, and other operating expenses usually account for 1% to 10% of sales. On average retailers collect 5% to 8% of sales in the form of commissions and approximately 2% as bonuses for selling winning tickets. The remaining 30% to 40% is profit turned over to the state (Pallanti, Ross & Hollander, 2006).

The states allocate their lottery profits in different ways (Borna and Lowry, 1987). A total of $222 billion was given to various beneficiaries. New York topped the list with $27 billion in profits allocated to education over the years. California followed with $17 billion to education, and Florida, $15 billion (Pallanti, Ross & Hollander, 2006).

Unclaimed Lottery Winnings

Unclaimed lottery winnings add up to hundreds of millions of dollars each year, and each state handles them differently. Some states, such as New York, require that unclaimed winnings be returned to the prize pool (Hobson, 1905). Other states allocate such funds to lottery administrative costs or to specific state programs. For example, in Texas unclaimed prizes go to funds that benefit hospital research and payment of indigent health care (Kelly, 2002). The California lottery turns the money over to educational programs—more than $27 million in fiscal 2005 (more than $550 million since 1985).

Taxes and Other Withholding From Lottery Winnings

Lottery winnings are usually taxable as personal income. All prizes greater than $600 are reported by the lotteries to the Internal Revenue Service. In general, the lottery agencies subtract taxes prior to awarding large prizes. For example, the New York lottery in 2006 withheld federal, state, and local income taxes ...