Lottery Dollars ARE Tax Dollars!

PA Secretary of Revenue Tom Wolf recently wrote to the Commonwealth Foundation about a mailing we sent out to members of the General Assembly highlighting the inappropriate use of tax dollars for Lottery advertising (see his letter here).

We thought you’d appreciate our response here and pasted below …

July 16, 2008

Thomas W. Wolf
Secretary of Revenue
Commonwealth of Pennsylvania
Strawberry Square
Harrisburg, PA 17128-110

Dear Secretary Wolf,

Thank you for your letter dated July 8 in response to our postcard which referred to the $30 million spent on Lottery advertising. You claim that “Not one penny of state tax money is used to pay for Pennsylvania Lottery advertising.” I must respectfully disagree.

First, I would contend that the 33% of Lottery sales going to state government coffers should be considered an implicit tax on Lottery players. I refer you to the U.S. First Circuit Court ruling in the San Juan Cellular case which lays out the legal definitions for a tax. Because the 33% of a Lottery ticket’s price going to the state is not a voluntary contribution; does not go into prizes or administrative costs; serves a general purpose, rather than benefiting buyers as a user fee; and is imposed by state government, Lottery tickets represent a tax on gambling expenses.

Furthermore, the Lottery was created with the intent of funding services while offering reductions in other taxes currently funding those programs. While those tax reductions were never realized, it is clear that Lottery funds are, and were always intended to be, public monies. Therefore, the Commonwealth of Pennsylvania must be held accountable to the public (taxpayers, Lottery players, voters, and residents) for the expenditure of those funds.

The issue of whether the lottery represents a “tax,” a “user fee,” or a profitable enterprise of state government misses the question of whether Lottery funds are being spent appropriately. You point out a number of “important programs” funded though lottery proceeds. What you fail to mention is that the $33 million spent on Lottery advertising, along with the $37 million for administrating the fund, takes money away from these important programs.

What you also neglect to mention is that, while the state engages in many forms of advertising, most of these promote new state programs or encourage citizens to act responsibility (recycle, conserve energy, don’t drink and drive, etc.). To the best of my knowledge, Lottery ads are the only state-funded advertising encouraging unhealthy behavior.

The ads never mention that the Lottery is the worst form of gambling, in terms of odds of winning. Slot machines, roulette, craps, and online poker all represent better odds for players. Yet the state, along with the federal government, has worked to keep these forms of gambling illegal, or in the case of slot machines, highly regulated and controlled by state government. These prohibitions are ostensibly to protect would-be gamblers (but are more likely designed to protect state lotteries from competition). So why doesn’t Lottery advertising inform would-be gamblers they would be better served betting elsewhere?

Your Lottery ads also fail to mention how players would be far better off investing their money in a retirement account than buying Lottery tickets. In fact, the Tax Foundation estimates that investing $100/month over forty years would yield $320,000 more than spending that money on Lottery tickets. Yet Lottery ads featuring “the 2nd most famous groundhog in Pennsylvania” don’t encourage retirement savings, but encourage people to waste their money gambling.

If you feel the Lottery should act simply as a profitable enterprise, or a business, advertising its services and attempting to maximize profitability, then it should be privatized. A private firm, regulated (and taxed) by the state, would undoubtedly provide a more efficient gambling service than state government. But so long as the Lottery is owned and operated by Harrisburg bureaucracies, every dollar collected and spent by your department must be properly viewed as belonging to the taxpayers.

I hope that in the future you will consider Lottery funds as public money and demonstrate greater accountability to the taxpayers and residents of this state in the use of these revenues.

Sincerely yours,

Matthew J. Brouillette
President & CEO