For every $10 of your earnings, as little as $2.00 to 2.50 might ever reach the pocket of a lottery winner
Often, only 60-65% of lottery ticket sales are paid out as winnings
States often receive money three ways when you buy lottery tickets
Most everyone enjoys dreaming of winning it big in the lottery. News media outlets publicize the large unclaimed pots of money on the evening news and they put a spotlight on the lucky multi-million dollar winners. Little do most people realize that the Federal and State Governments are quietly using this gambling device to double and triple tax those who can least afford it: the poor and lower middle class.
Why do we tolerate this?
A single lottery ticket does not cost a lot. The lucky winner is the one who pays the extra tax on everyone’s behalf, but they don’t care because the pot is so large. So by taxing us in small stages and by shifting who pays the tax on lottery winnings, a wonderful re-taxing formula has quietly emerged for state and federal taxing authorities. Put another way, if you were told to voluntarily pay 75% of your wages to government-sponsored programs for the rare chance of getting everyone else’s remaining 25% would you do it?
What to do?
If you think the funds being scooped up by the government is ethically wrong what can you do about it?
|Stop buying tickets. If the lottery no longer generates sales, the programs would be discontinued.|
|Pressure legislatures. Why aren’t lottery winnings taxed at a lower rate? Shouldn’t the government acknowledge they’ve already received tax on this income? We have lower tax rates on dividends and capital gains so why not on lottery winnings? If you agree, send a letter to your representative asking that lottery winnings be capped at the lowest income tax rate or a special rate for lottery winnings.|
|Tell everyone you know. If you think the double and triple taxing of income through lotteries is not right, make everyone you know aware of this tax trick. The more that know, the more likely something will change.|
|Tax planning. If you win the lottery, consider taking the annuity option and then move to a no income tax state. You won’t save in Federal taxes, but it should save on some of the ongoing state tax obligation.|
Playing the lottery is fun. Dreaming of being rich is nice. Having our government promote these things as an opportunity to re-tax its everyday citizens is at best a questionable practice.