Arkansas’ Lt. Governor, Bill Halter, has staked his political fortunes on a constitutional amendment creating a state lottery. Halter has urged adoption of the lottery to increase funds for college scholarships and K-12 teacher bonuses. All of the money, he emphasizes, will be used to increase education spending: “The bill specified that revenue generated by the lottery would expand, not replace, existing education funding.”
Promising that lottery dollars will be earmarked for increasing education spending is a common strategy to expand political support. But of course it is impossible to guarantee that lottery proceeds would supplement and not substitute for spending. Dollars are fungible, so it is always possible that lottery dollars would replace dollars from other sources that would have been used to fund increases. That is, as long as education spending goes up (as it consistently has in the past), who’s to say whether those increases would not have occurred anyway without the lottery? The lottery money could just free what would have been spent on education to be spent on something else. That is, lotteries are basically just general tax increases even if it is claimed that the revenue is targeted for a particular purpose. (See for example Spindler, 2003)
So, if lotteries are just another tax increase and not a free way to increase education spending, are they a good way to increase taxes? Well, the tax burden from lotteries falls disproportionately on the poor and disadvantaged. Supporters of progressive taxation shouldn’t be very interested in lotteries.
On the other hand, some people enjoy gambling and want lotteries. Liberty concerns would probably favor permitting gambling. But a state operated lottery is effectively a local gambling monopoly, which lovers of liberty should dislike. I guess the question is whether a monopoly is better than a prohibition as far as liberty goes.
However you slice it, the lottery isn’t a great deal. There is no lock box into which the lottery dollars go to ensure that they increase education spending and cannot substitute for other dollars. Lotteries are a regressive tax. And lotteries barely increase liberty because they are operated as local monopolies. Bill Halter may want to find a new issue to make his political fortune.
Posted by Jay P. Greene 
Jay P. Greene's Blog 