Tuesday, June 16, 2009

Anything for a Buck - Part One

A lesson in economics at no additional charge

Last month NFL owners voted to permit NFL owners to create marketing partnerships with state lottery agencies, states may now make and sell scratch off tickets with NFL logos on them and the NFL teams may now pimp them out and collect a share of the sale. Today The Curly R begins a two part series exploring the role of the lottery in society and how completely oblivious the league, the Redskins and some well compensated Redskins players are to that role.

Part One: The Lottery Is a Regressive Tax on the Poor
Part Two: "Redskins fans and lottery fans have an awful lot in common"


Anyone that saw the movie Reality Bites will appreciate how hard it is to define irony, Wikipedia seems to be pretty close:

... all senses of irony revolve around the perceived notion of an incongruity between what is expressed and what is intended, or between an understanding or expectation of a reality and what actually happens, "when the literal truth is in direct discordance to the perceived truth."

I got a whiff of some pretty strong irony in coverage of the richest NFL franchise's new partnership with the Virginia Lottery.

Let us start at the top. Last month the Delaware state Supreme Court ruled that the state of Delaware could legalize and regulate betting via sports book, as is only the case now in Nevada. The NFL argued, hilariously, that more betting would not be good for sports in general and has threatened a lawsuit to prevent Delaware from instituting a form of gambling that would entitle the league to zero dollars.

And then rushed to embrace another form of gambling (op. cit.), one that the league could get a cut of: lottery tickets.

Let me be clear on one thing: the lottery is a regressive tax. Pure and simple, case closed. A quick primer on taxation:

A progressive tax costs you more the more income you take in. Think income tax. The more money you make the higher the percentage of your income is paid in taxes.

A regressive tax costs you more the less income you take in. Think motor vehicle registration fee. In Virginia registering a car is a flat $38.75. If you took home one thousand dollars in pay that week, equivalent to about an eighty thousand dollar a year job, it cost you 3.9 percent of your income that week to register your car. If on the other hand you took home two thousand dollars in pay that week, equivalent to about a 160 thousand dollar a year job, that same registration cost you 1.9 percent of your income that week.

Progressive taxes by definition take more from those that can most easily afford it. Regressive taxes tend to do the exact opposite, that is take from those that can least afford it. Fold in economic freedoms consistent with income levels and things like fast food, cigarettes and alcohol have regressive taxation components.

And so we come back to lotteries. A lottery is a form of taxation. From the Tax Foundation's excellent 2005 piece State-Run Lotteries as a Form of Taxation:

Lottery proponents argue that a tax is a mandatory or compulsory payment, and playing the lottery is voluntary, so lottery revenue cannot be a tax. But they're confusing the purchase of a product with the payment of the tax on the product. True, the purchase of a lottery ticket is voluntary, but the tax portion of the ticket price is not, just as a sales or excise tax is compulsory on a voluntary purchase of alcohol, clothing or books. The voluntary nature of the purchase does not make the tax any less of a tax. Using the lottery supporters’ rationale, we’d have to say that because the purchase of a book is voluntary, the sales tax on the book is not really a tax. Just try to buy a $20 book and hand the cashier a $20 bill, but refuse to pay the $1 sales tax and leave the store with book in hand. The only difference between the lottery tax and sales or excise taxes is that the lottery tax is built into the price of the ticket, rather than reported separately.

At the heart of the spurious if-it’s-voluntary-it-can’t-be-a-tax argument is the assumption that, since the lottery is a recreational activity rather than a necessity, only people who can afford it and enjoy it—those who are willing and able to pay —will participate. Presumably, government revenue that is contributed enthusiastically and voluntarily is preferable to revenue that is contributed under duress. This argument seems to suggest that the lottery is akin to a sort of user fee, or a charge paid to the government for a specific service, by the people who use that service.

The tax portion of the ticket the piece is referring to is the promised chunk of the ticket cost that is going to some pledged state cost center, in Virginia's case fifteen percent, to schools. Although state agencies, pro-lottery groups and flat tax proponents do not classify the funds as taxation, the US Census Bureau classifies the fees usable by states resulting from lottery sales in the same category as proceeds from the sale of US postage, tolls from bridges and roads, usage fees from public facilities such as parking, parks or campgrounds and tuition in excess of costs from public institutions of higher learning.

As any fair minded person will agree over the past ten years as quote taxes unquote have remained low and resulting structural budget gaps at all levels of government have developed, these user fees, including the aforementioned vehicle registration, fishing and hunting permits, business permits and others have moved to the forefront of local revenue generation and can no longer be considered as not taxes.

As a fixed fee device the lottery is a regressive tax. When a higher income person purchases a lottery ticket it is less money out of his pocket proportionately than that of a lower income person.

Now incorporate the notion that lotteries disproportionately serve the lower economic rungs with promises of quick income. Those with sufficient education generally understand, even if they choose to continue playing, the chances for a large score are stacked heavily against the player, and those with sufficient income are not as susceptible to the lure of something for nothing. Sure rich people buy lottery tickets too, the caricature of the working class stiff buying a lottery ticket to go with his headbanger of beer and pack of generic smokes is based in reality, go hang out at a Washington area 7-11 if you do not think so.

So add this all up senior project style and in the lottery you have a regressive tax whose burden is more pronounced the further you go down the economic ladder.

So now with the NFL authorizing team owners to negotiate with state lottery boards, arrangements that are expected to bring in more than a million dollars in additional revenue to the teams (op. cit.), to paraphrase a political cartoon of yore, now your regressive tax on the poor comes in Redskins and Ravens!

Anything for a Buck concludes tomorrow with Part Two, "Redskins fans and lottery fans have an awful lot in common."

Altered Virginia Lottery logo from here.