Monday, February 05, 2007

Should Government Run The Lottery?

Currently 43 states in the United States run lotteries as a government operation. In Illinois and Texas, there is currently debate as to whether these state lotteries should be privatized. Privatization of the lottery would garner ostensible benefits – a large amount of cash, a more efficiently operated industry and less government involvement in an activity that could be run by the free-market. Yet if the revenue gained by state lotteries was used to fund beneficial government programs the privatization of the lottery would be counterproductive.

The Texas State Lottery, for example, reported sales of $3.77 billion in 2006; the cost of running the lottery was substantially lower. Such a large revenue stream, if put to the correct uses, would act as a deterrent of higher taxes and indeed could help both the programs it funds as well as the well-being of the individual. Participating in a lottery is a choice, compulsory taxation is not. So while a government-operated industry is to be avoided at all costs, a state-run lottery could in fact amount to be the exception that proves the rule.

In order for a state-run lottery to be beneficial certain criteria must be met. Primarily, it must be ensured that all revenue derived from the lottery not given out as prizes must be either used in positive government programs or given back to taxpayers in the form of tax rebates or permanent tax cuts. A lottery that funds school vouchers, or the expansion of a state’s Earned Income Tax Credit, would be entirely acceptable. And indeed, if lottery revenue is used to fund such beneficial government programs, less tax money is needed.

The problem, however, lies in the distribution of lottery generated revenue. Currently no state effectively uses lottery revenue; instead, state politicians use the revenue to fund pet-projects or destructive government policies. If such practices exist the state-run lottery is counterproductive in two ways: one, it is an industry that could be operated privately, but run by the state, and two, it funds destructive programs. It is, therefore, imperative that state-run lotteries be supported and continued only if they use their revenue effectively.

Unfortunately, such is in all likelihood never bound to occur, which is why privatization of the Texas and Illinois lotteries should, at the present time, be encouraged. If a state enacts lottery legislation that does, however, use the lottery’s revenue effectively, a state-run lottery should not be looked at in contempt and should, perhaps, be encouraged.