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Lane: A tax on ignorance

BY JOE LANE | DECEMBER 19, 2013 5:00 AM

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This past Tuesday, the estimated Mega Millions Lottery value was a whopping $636 million, the second largest total in the lottery’s history.

The lottery has been around for the entirety of my conscious life and is about as ubiquitous and well-known as gambling can get.

Although it supports many vital government funded programs, the lottery is, first-and-foremost, a tax on American ignorance.

According to the Powerball website, the Multi-State Lottery Association was formed in 1987 and was offered in six states, including Iowa. Mega Millions, which offers the largest jackpots of any lottery in North America, traces its lineage back to the Big Game, which began in 1996.

According to the Mega Millions website, despite the fact that there were two jackpot winners this week, the odds of winning the jackpot are a staggering 1 in 258,890,850. Overall, including small prizes between $1 and $5, the odds of winning anything are 1 in 14.7 — pretty decent odds, actually.

The odds of winning more than $2, however, aren’t very good — 1 in 473 for a $5 prize and one in 766 for a $50 prize. Which means that, according to NBC News, you are more likely to be born with an extra finger or toe than win $50 in the Mega Millions lottery.

Let’s take the hypothetical situation of people who buy two lottery tickets for each Mega Millions drawing — meaning that they purchase four $1 tickets each week. Let’s also assume that they began this practice at age 21 and continued until the Center for Disease Control and Prevention’s average American life expectancy of 78.7 years, and, just to mix things up a bit, let’s say the individual missed 1,000 drawings during this time.

They would have spent, barring a change in the price of lottery tickets, approximately $10,000.

This situation, of course, assumes that they do not win even $1 just one time, which, admittedly, seems unlikely. However, the validity of the math is poignant.

If you were told that you could either have an additional $10,000 at the end of your life or spend that money on lottery tickets knowing that each week your odds of doing any better than breaking even are 1 in 56, which option would you choose?

Of course, the lottery is not all bad. According to the Iowa Lottery website, between 1986 and the end of fiscal 2013, the Iowa Lottery has raised nearly $1.5 billion for vital programs benefiting Iowans, including the Iowa Veterans Trust Fund and, ironically, the Iowa Gambling Treatment Fund. All of which are noble causes, to be sure.

It is important to note that the lottery is a tax on American ignorance, not ignorant Americans. Brilliant people purchase lottery tickets. In fact many lottery players are quite intelligent folks who are simply giving it a go.

Although I struggle with the agonizingly low odds of winning any significant sum of money and the potentially enormous loss of money over a lifetime, it is clear the lottery is an integral part of the American society in which we live.

And although I feel as though the lottery is a tax on American ignorance, I also shudder to think of the potentially colossal negative impact on government-funded programs by eliminating the lottery from our economic system.

Despite the fact that there were, in fact, two jackpot winners this week, my amateur (and unsolicited) financial advice is still this: Unless you’ve got 11 fingers or toes, I wouldn’t rush out to purchase a lottery ticket.


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