Last night, three “lucky” people won the $1.6 billion Powerball, collecting $528.8 million each. That certainly sounds like a cool lump of cash, but the number dwindles when you consider certain factors.
First, if any of the winners choose to receive their payment in a lump sum rather than annuity, the total drops down to $327.8 million before taxes. Speaking of which, the taxes are expected to be massive. KTLA explains:
Those who choose the cash lump sum will get their money right away — but not before the federal government withholds 25%. During tax season, another 14.6% will be deducted. This makes a grand total of 39.6% — the amount the IRS taxes the top income bracket. (Lottery winnings are taxed like income.)
Lucky for the winners of this jackpot — as if they weren’t lucky enough — the states they live in won’t take out any additional taxes. Florida and Tennessee don’t have state income tax and California law prevents taxation of lottery winners.
After taxes, the cash lump sum will be $187.2 million for each winning ticket.
This mega-hype seems pretty overblown when you learn the winners will walk away with little more than 10 percent of the actual reward.
Of course, $187.2 million is still a massive amount of money — certainly enough to make a family rich for several generations if handled responsibly. The tragic part is that a good number of lottery players are completely ignorant of basic finance. In fact, 70 percent of lottery winners end up bankrupt within a few years of collecting their earnings, according to the National Endowment of Financial Education.
Indeed, the state lottery looks less like gambling and more like a tax on the stupid and poor when you consider that the statistical chance of winning last night’s Powerball was one in 292.2 million.
So why does the state lottery even exist?
The lottery is not typically a top target for limited-government types, largely because it’s voluntary and a reliable source of revenue for state governments. However, we should ask ourselves if a little extra cash in the government coffer is really worth scamming millions of low-income and low-information Americans.
The state is not exactly innocent in the way it handles the lottery. As John Oliver brilliantly brought to light in 2014, many states advertise buying lottery tickets as a noble deed since supposedly the revenue goes to fund public schools. However, a quick Google Search reveals case after case of states cutting education funding or redirecting lottery revenue towards other expenditures.
At least taxes are a much more honest way of collecting revenue than preying on the vulnerable. With taxes, the loss of funds is quantifiable and upsetting. With the lottery, players usually cannot estimate how much they’ve spent per year on tickets, yet nonetheless hold out false hope of winning big bucks.
It’s downright cruel and it needs to stop.