Powerball Jackpot: Higher Winnings By State Lottery Changes Tax The Poor

The $550 million Powerball Jackpot was not just a fluke. State lottery changes by lottery officials have purposely been building larger Powerball jackpot winnings faster in order to drive sales and generate more revenue for states that run the Powerball and Mega Millions lottery games. Unfortunately, this increase in income comes at a high cost to the poor.

“The purpose for the lottery is to generate revenue for the respective states and their beneficiary programs,” said Norm Lingle, chairman of the Powerball Game Group. “High jackpots certainly help the lottery achieve those goals.”

According to The Kansas City Star, lottery officials have proven that, once the Powerball jackpot winnings reach a certain threshold, more players buy. Somewhere around the $100 million mark, the occasional players seem to come back into the stores in droves, causing people to join together in lottery pools in order to buy even more lottery tickets. Stores that sell lottery tickets begin to see Powerball players who normally never buy.

Powerball and Mega Millions games are seeing jackpots grow faster and higher in part because the participating states agreed to sell tickets to one another. The larger pool of players means Powerball jackpots roll over to higher numbers faster, which tends to increase the buzz about the Powerball jackpots, which increases sales.

Combine this with Powerball tickets doubling in price in January to $2 and you can see how the strategy is paying off for the states. While ticket sales initially dropped, sales revenue has increased 35 percent over 2011. Sales for Powerball reached a record $3.96 billion in fiscal 2012 and are expected to reach $5 billion by year end.

Of the $2 cost of a Powerball ticket, $1 goes to building the size of the prize and the other dollar is kept by the lottery organization. After administration fees, the remainder is then distributed to state programs, typically related to education. The federal government keeps 25 percent of the Powerball jackpot, and most states withhold an additional five percent to seven percent in taxes.

Generating higher Powerball jackpot winnings could be said to be a plan to manipulate people’s emotions by design. This is how the seven-time lottery winner Richard Lustig has sold his books, claiming he has a secret to regularly winning the lottery. According to Business Insider, lottery tickets tend to be bought by people who are poor and/or jobless. As a result, the Powerball lottery really tends to act more like a voluntary tax than a game.

Business Insider lists statistics which illustrate how Powerball jackpots tend to take more money from the poor and middle class than they pay out:

– In North Carolina the highest per capital lottery sales were in the poorest counties. Residents from the poorest areas would spend over $400 per year on lottery tickets.

– “People in households earning $40,000 accounted for 28 percent of South Carolina’s population but made up 54 percent of frequent players.”

– “Texas instant tickets were more likely to be purchased by a person who was out of work than someone who was employed or retired.”

– A 1994 study from Indiana University found that lottery sales tend to rise with unemployment rates.

The Powerball jackpot may incite excitement, but having a jackpot winner comes at large cost to everyone else buying the Powerball tickets. What do you think about how state lottery officials have purposefully made changes to the Powerball lottery in order to increase state revenue?