May 28, 2024

The Hidden Costs of Winning the Lottery


There is, of course, an inextricable element of chance when you buy a lottery ticket. But there is also much more going on here than just that. Lottery officials know what they are doing. They are dangling the promise of instant riches in an age of inequality and limited social mobility. They are making people spend a huge percentage of their incomes on tickets. This is not something to be taken lightly.

During the post-World War II period, states started lotteries because they wanted to expand their array of public services without raising especially onerous taxes on the middle class and working classes. They also saw it as a way to avoid the kind of political backlash that might have come from raising income or sales taxes.

Many state lotteries sell scratch-off games that offer a variety of prizes, from sports team merchandise to vacation packages. They often partner with large corporations for merchandising deals in which the companies promote the game and share advertising costs. The lotteries are also a lucrative source of revenue for state governments. Depending on the state, lottery revenues make up from 2.2% to 4.7% of its general budgets.

Whether you win the lottery or not, it’s important to be aware of how much it can cost you. Even if you are the winner of the grand prize, you will likely have to pay a large sum in federal taxes (24 percent at the most) and state taxes as well. And if you’re married, you might have to split the prize with your spouse.