Thursday, November 29, 2012

Lotteries: 'An Appealing Tax On The Mathematically Challenged'

National Lottery To End All Deficits
'I find the concept of taxes that target the mathematically challenged to be especially appealing. 

This is in contrast to our present situation where the mathematically challenged design our tax code.' - Anonymous Ph.D

We caught a bit of lottery fever this week amidst all the hysteria about the $550 Million+ Powerball game that ended last night with 2 winning tickets sold in Arizona and Florida.

As the night went on, we found that the more and more we thought about the lottery, the more and more we think it might be the solution to our federal budget problems. And one that even conservatives might weigh in on positively.

No kidding.  Think out-loud and outside-the-box with us for a moment.

The quote above comes from a good friend of ours who is a double Ph.D in the sciences (engineering) and whom we think really wants to be a raging fiscal conservative but can't stand the social conservatism of the current Republican Party.

In fact, I would nominate him as one of the poster children for the budding 'new majority' that is building right now before our very eyes, the socially-libertarian/fiscally-conservative Independents who are registering as unaffiliateds by the millions across the nation where they can.

He is a math wizard so when I somewhat sarcastically noted that all we had to do was run a huge national lottery to balance our budgets, he responded with the quote noted above: 'I find the concept of taxes that target the mathematically-challenged especially appealing'.

Here's our line of thinking on this:
  1. Lotteries typically run on a 50/50 split:  50% of the revenues go to the government for whatever purpose their legislature and governor deemed 'appropriate' in the public interest. Enhanced financial support of public education usually comes first in each state.
  2. 50% of the revenues go to the lucky winner of the outrageously slim odds of lining up the right numbers for that particular drawing
  3. If last night's Powerball lottery generated over $1 billion in total revenues, what would it take to balance the federal budget with a similar stream of lottery money?
  4. $2 trillion since 1/2 or $1 trillion would go to the federal government to balance the budget. The other 1/2 or $1 trillion would go to some unbelievably lucky person or persons who band together to buy the tickets.
  5. What order of magnitude would that have to be relative to last night's Powerball?  'Just' 2000 times larger.
Ok.  That is a lot of money.  So is our current deficit situation.  Taxing the rich ain't gonna get us anywhere near balance. Maybe just over 5% of the way there if President Obama gets his Christmas wish come true and Donald Trump and his buddy Warren Buffett get stuck paying the same rate of tax they paid under President Bill Clinton.

'The National Super-Duper Powerball Lottery To End All Deficits Forever in the US'.

Even President Obama would support that, wouldn't he?

Everyone would be part of the solution.  Even those who now currently pay zero in federal income tax each year.

Why?  Because lotteries are well-known to be one of the most regressive of all taxes since lower and middle-income folks play the lottery at a much higher rate than upper-income, more educated taxpayers.

Apparently, no one on the progressive liberal side of the spectrum seems to worry too much about the negative impact lotteries have on the poor and disenfranchised.  They pour their meager resources into buying hundreds of tickets with the slim hope and prayer that it will lower their odds of winning substantially and no one seems to care about the 'injustice' of them doing that anywhere in the nation today, do they?

The odds of winning just doesn't go up appreciably by buying more tickets.  Just plain math tells you it is impossible to do.

As the professor says above, higher-income folks are less 'mathematically-challenged' and can recognize that you have about 170 times more of a chance to become President of the United States yourself or about 2000 times more of a chance to be hit by lightning than you do of ever winning such a big jackpot like last night.

The only fully 'mathematically-challenged' middle-or-higher-income people are the 535 individuals we send to the US Congress each session because they sure as heck can't subtract (but they sure as heck can add, can't they?)

One huge added side-side-benefit of this whole exercise?  When someone wins the $1 trillion in the jackpot by 'correctly' picking the string of 20 numbers in order like a long trifecta, roughly 30% of it would go right back to Uncle Sam in the US Treasury in the form of federal taxes!  How about that, ladies and gentlemen?

Not only would the government clear $1 trillion in new revenues to balance the budget each year, since apparently President Obama and the Senate Democrats don't believe that spending is the problem and neither are the entitlements (many of which go to benefit high-income people as well), but another big fat whopping check of $300 billion would flow into its coffers which would then be used to pay down the existing debt of $16 trillion...and climbing!

Do this national lottery for about 48 years...and we will have extinguished the debt forever.  And hope our great-great grandchildren has learned a sobering lesson in public finance.

We don't know about you but this 'national lottery to balance our budget' is looking like a simpler way to do so than Bowles-Simpson or any other plan out there right now.

Who could argue with that?

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