Lotto fever? Hey, let’s use it to fix the federal budget

By Jeff Greenfield

So another mega-lottery has come and gone, another spate of news reports and long lines at convenience stores, the same inane question from reporters (“What are you going do with all the money?”), the same closing shots of reporters with their own tickets, promising the chuckling anchors that “with any luck, you won’t be seeing me Monday.”

Left unasked by the reporters is how much money those eager buyers would have had if they’d banked what they spent on lotteries over the years—thousands or tens of thousands of dollars in far too many cases—or whether the spread of state lotteries to 43 states has seen a steady rise in compulsive gambling. (It almost certainly has.)

Left largely unexplored is which states have broken their promises to use the net proceeds from a combined $56 billion in annual lottery ticket sales to increase spending on education, rather than treating the lottery as an apparently painless, voluntary tax in place of the more painful, involuntary variety.

You can (almost) forgive the press for its role as an enabler of the inevitably labeled “lotto fever.” There’s something about the prospect of a humongous sum of money that triggers an almost chemical loss of reason. The result is not simply dropping a few bucks for a ticket in exchange for a few days of fantasies, but waiting on line for an hour or more, and/or spending a painfully large chunk of a painfully small disposable income when the odds of winning are pretty much the same whether you play or not.

All this explains why Voltaire is supposed to have called the lottery “a tax on stupidity.”

And it’s why I’ve come up with an idea to use that stupidity to help solve the federal budget crisis. It’s an idea that taps into the public’s feral hunger for a shot at an immense amount of money, without in any way feeding the destructive aspects of government lotteries.

Here’s how it would work: Starting immediately, Congress and the president would agree to a Taxpayer Lottery. Everyone filing a tax return would be automatically eligible for a series of prizes that would start at $50 million, going up to a cool $1 billion—lump sum, and totally tax-free. There’d be no entry fee, no ticket to buy. If you’re one of the several hundred winners, you win—with one small catch! All winners would have their tax returns audited. (Since every taxpayer is theoretically subject to an audit, there’d be no “right” to exempt yourself from the lottery). If the audit found evidence of substantial tax evasion, you’d lose the prize.

What’s the point of this? The level of tax evasion in the U.S.—not legal avoidance, but illegal evasion—has grown to some $2 trillion a year, according to one recent study. That represents an annual loss to the federal government of $450 to $500 billion a year. My hunch is that the same irrational behavior that leads people to think it’s worth hours of their time and hundreds of their dollars to play a mega-lottery will lead them to be a lot more careful about reporting their real incomes when there’s a chance that evasion will cost them a fortune.

Even if a small percentage of chiselers decided to come clean, it could be worth tens of billions of dollars a year to Washington—with no administrative costs, no need to hire additional IRS agents, no burdensome trials. All that’s needed is that feral hunger for large sums of unearned cash, deeply embedded in human nature. (See, for example, Mark Twain’s "The Man That Corrupted Hadleyburg.")

Yes, such an idea would do little to persuade rich tax evaders to report their incomes honestly. (I’d want the government to take a portion of the Taxpayer Lottery proceeds to go after the well-heeled crooks, maybe even including some of those responsible for the financial meltdown of the late “aughts.”) But even the most ardent populist can’t rationally cheer the prospect of massive tax evasion, and, as Mitt Romney famously reminded us, a large segment of the population—what is that percentage?—pays no income tax at all.

An incentive like a Taxpayer Lottery, then, imposes no additional cost on citizens, other than a decision to do what the law requires, on the theory that the laws of probability will be magically suspended.

In all modesty, I believe that if this idea is adopted, I can just sit back and wait for the Nobel Economics Prize people to come calling. And by the way, that prize is completely tax-exempt.