state lottery

The North Carolina Education Lottery has seen many changes since its scandal-soaked enactment in 2005: lots of new games, Mega Millions, even a new headquarters. But one thing has…

Policymakers should think carefully about the administrative costs of raising revenue through a state lottery. In effect, the state would be legalizing gambling, establishing a state monopoly on it, and then taxing gross sales at a 33 percent rate. The cost per dollar collected of this lottery tax would be 20 to 50 times greater than the cost of raising rates for other state taxes that already exist. The best course for the state is not to raise taxes at all but to reduce the size of government.

In his State of the State address, Gov. Mike Easley stated his case for a state lottery for North Carolina by suggesting that it would raise up to $500 million annually and that North Carolina's neighbors were collecting "hundreds of millions of dollars" from N.C. lottery players. Neither assertion is correct. The net proceeds from a lottery will likely be no more than $285 million. And a lottery's administrative costs would far exceed the current "loss" of revenue to other state lotteries.

As state leaders debate yet another proposal for a state lottery this year, they should consider the equity issues raised by using proceeds to fund college scholarships, as done in Georgia and proposed in previous N.C. bills. The family income of freshmen entering a UNC system school averaged $55,000 in 1997, while the median income of UNC-Chapel Hill freshmen was about $75,000.1 By comparison, if a North Carolina lottery follows Virginia's pattern of participation, the median household income of lottery players would be only $29,000.2