In addition to raising revenue through taxes, governments also use lotteries for funding. Many American colonies received funding through lotteries, including a battery of guns for Philadelphia and the construction of Faneuil Hall in Boston. Today, lottery prizes can be as high as $1 million, and it’s easy to see how they became so popular. Regardless of your reasons for playing the lottery, here are some facts about them. In addition to being tax-free, a lottery can be very addictive.
Lotteries are a means to raise revenue in addition to taxes
Whether or not you support state-run lotteries is a matter of debate. If they were a purely voluntary endeavor, the public would be outraged. But for a government to successfully raise revenue through lotteries, it needs to prove that the proceeds are fair. The debate on the fairness of lotteries is complicated, but it is not the end of the topic.
They are addictive
According to statistics, the odds of winning the top lottery prize are 1 in 292.2 million. That’s more likely than becoming a movie star or dying from a bee sting. However, lottery addiction is real, and around two million American adults suffer from severe or moderate gambling addiction. According to the National Council on Problem Gambling, lottery mania can trigger relapse in recovering addicts. However, winning the lottery can help break a cycle of compulsive behavior.
They are tax-free
Winning the lottery is considered ordinary taxable income. Consequently, lottery winnings are taxed at the same rate as wages and salaries. Of course, the IRS automatically deducts 25 percent of the winnings as tax money. If you win the lottery while you are living, however, your winnings will form part of your estate and will be subject to inheritance tax at 40%, if you die before passing on the money. Thankfully, the threshold for inheritance tax is PS325,000.
They are a big business
In 2014, lottery sales topped $70 billion, but only $18 billion actually made its way to the states that run the games. This amount represents about a fourth of the total sales. But the money does not stay in state coffers; many states earmark lottery revenue for specific purposes. And officials often game the system to get as much as possible. Even in the case of the powerball jackpot, the winners are unlikely to benefit from the money.