What the NC Education Lottery isn’t telling you about its winners | Opinion

The frenzy this week surrounding the gargantuan multi-state $1.58 billion Mega Millions jackpot is another reminder of just how popular lottery games are. But these games are also a regular source of revenue for almost all states, including North and South Carolina.

Through their lottery agencies, states sell tickets for a variety of lottery games, including lotto, and pass along the profit they earn to their state treasuries. Like ordinary taxes, these profits come out of the pocketbooks of citizens. And, as with ordinary taxes, we should care about what groups of citizens pay the largest share.

As a Duke University public policy professor, I recently analyzed 55,000 records of N.C. lottery wins obtained from the NC Education Lottery. My study ran from January 2022 through August 2023 and involved the help of several graduate assistants and a large computer. Here’s what I found:

It turns out that the best-selling lottery game isn’t multi-state games like Mega Millions, it’s instant scratch-off tickets, available for purchase wherever gas or groceries are sold. These tickets are purchased disproportionately by people with below-average income.

As a percentage of their income, proceeds from lottery games make up a much larger percentage of the incomes in the bottom half of the income distribution than they do of those in the top half. Taxes with this pattern are called “regressive.”

To reach those conclusions, I analyzed information about residents who won prizes of $600 or more in 2020 and 2021. These winners are the only lottery players for whom the state collects a home address. Since winners are randomly chosen from all players, examining them yields a valid estimate of where all players live and how much they spend.

For each town or city in the state, I added up the number of winners and their prizes and compared those to the number of households in each location. By comparing communities both rich and poor, I could determine where the burden of lottery finance was the heaviest.

Instant games are key to finding the answer, because they make up two-thirds of all lottery sales. The number of instant game winners per 1,000 households was more than twice as high in low-income towns such as Shelby, Lumberton and Statesville, as it was in wealthy towns like Cary, Chapel Hill and Cornelius.

Overall, households located in the poorest one-fifth of communities, whose aggregate income was just 13% of all households in the state, won a whopping 31% of all instant game prizes. As a percentage of income, the money turned over to the state from this game was largest in these low-income communities, making the burden clearly regressive.

For Pick 4, a game where players choose their own 4-digit number, low-income communities purchased an even bigger share, 42%, making Pick 4 the most regressive of all of the state’s lottery games. The other two games — lotto and keno — are also regressive, but less so.

Overall, the burden of lottery finance is decidedly regressive. As a percentage of households’ incomes, all lottery games take more than three times the percentage of income in the poorest one-fifth of communities as it does in the wealthiest one-fifth.

Although the NC Education Lottery possesses the information to know all of the findings in my study, it has chosen to report the results from a survey that made no distinction between one-time players and heavy bettors, stating: “Folks who play the lottery come from all walks of life and represent a cross-section of North Carolinians.”

State leaders could better serve the public by acknowledging the fact that lottery purchases are disproportionately heavy in low-income communities. Also, the legislature could see to it that the educational spending for which lottery funds are earmarked are directed specifically to uses that would most clearly benefit low-income communities.

Charles Clotfelter is the Z. Smith Reynolds Professor Emeritus of Public Policy at Duke University’s Sanford School of Public Policy. To obtain a copy of his study, email charles.clotfelter@duke.edu . These view are his own.