Sure, there’s a chance – a infinitesimal one – you could win one of the two big lotteries this weekend.
For the first time in history, both the Mega Millions and the Powerball jackpots have topped out at over $300 million.
That’s a nice chunk of change, should one person win all of it. But consider: With the cash option payout in a $300 million jackpot, the prize is really less than $200 million.
Then you have to pay the real winner of these state-run lotteries: the government. The first thing they’re going to take is a 25 percent federal tax. On that $200 million lump-sum payout, that’s a cool $50 million right to Uncle Sam.
Then there’s the states. Depending on where you live, you’ll pay pretty handsomely. On that $200 million payout, in New York, the state with the highest tax rate on lottery winnings, you’ll give them a cool $17 million. Other states, like California (surprisingly) and New Hampshire, have no taxes on lottery winnings.
Oh, and if you live in New York City, they’ll impose an additional 3.876 percent tax on those winnings, or about $7.75 million.
So that big $300 million winning lottery ticket could turn out to be worth about $125 million after the government has taken its share.
For the feds, it just goes into the big IRS pot – money to be doled right back out for welfare checks, fighter planes and research studies on bird watching.
Each state gets to decide how to spend their largesse … Education is usually where most of the money goes, but not everywhere. Pennsylvania gets about $1.3 billion every year in lottery winnings and they spend $900 million on programs for the elderly. Wisconsin spends almost all of their revenue to lower property taxes and Minnesota spends much of it on natural resources.
Not to mention that lotteries typically amount to a tax on the poor. People who are desperate or lower income (and can least afford it) are most likely to spend money on the lottery.
Cornell University economics and management professor David Just told NPR another reason why gamblers bite. “What appears to be happening is that they really believe that there’s going to be a return on this investment,” he says.
Just and his colleagues crunched lottery data from 39 states. He says many people, especially the less educated, simply don’t understand how abysmal their chances are.
Even if everyone did understand, Just says, his research shows why some still might play.
“It’s the desperation play,” he says. “People don’t treat it like entertainment. Instead those — particularly those who are poor — are treating this more as an investment opportunity. It’s their Hail Mary pass to try and make it big.”
The point here is that while there may be one or two big individual winners of the lotteries on Saturday, the big winner – now and forever – is the governments – federal and state – that take their fair share of your winnings.
Do you agree? Are you still going to buy a ticket? I have to admit it … I might!