When Nevada was created, the idea of a lottery was in such poor odor that the state’s founding fathers wrote a prohibition into the state constitution.
Times have changed.
Democratic Party leaders in the Nevada Legislature are pushing a lottery to pay for education.
Assembly Speaker Richard Perkins, Majority Leader Barbara Buckley and Senate Minority Floor Leader Dina Titus, all Democrats, have endorsed the idea.
Yet lotteries are generally regarded as one of the most regressive ways of raising money for government—that is, they hit the poor more than the rich.
“There’s a correlation between those who play the lottery and income,” says UNR economist Thomas Cargill. “You know, the lottery is a regressive tax on people who are not very good at math. I saw that on a bumper sticker in California.”
Isn’t that the worry of the people who don’t know math?
“That’s correct,” Cargill says. “But the question is, do you want to finance government expenditures, which are supposed to be for the public good, with a regressive tax?”
Cargill isn’t the only one who considers lotteries regressive. There is a consensus about lotteries among economists and fiscal experts. The final report of the National Gambling Impact Study Commission, which for three years scrutinized gambling in the United States, found that “players with household incomes under $10,000 spent almost three times as much money on lotteries as those with incomes over $50,000” (govinfo.library.unt.edu/ngisc/).
The commission quoted Duke University economist Philip Cook: “It’s astonishingly regressive. The tax that is built into lottery is the most regressive tax we know.”
The Tax Foundation in Washington, a pro-business group, has issued a report that says, “State-run lotteries make state tax systems more regressive, less transparent, and less economically neutral. Legislators seeking to increase tax revenue would do well to consider other sources.”
So how did the Democratic Party end up in bed with a soak-the-poor tax?
Perkins, Buckley and Titus say they want the money to pay for education funding. Buckley has emphasized the voluntary nature of spending on the lottery.
“If someone thinks it’s great entertainment to spend $1 on a lottery ticket, that’s their choice,” she said last month.
But critics say most taxes other than on food (which is not taxed in Nevada) and water are voluntary, but that does not excuse government from the obligation to make taxation fair. The Tax Foundation’s Alicia Hansen says, “This argument overlooks the fact that the purchase is voluntary, not the tax, just as a sales or excise tax is compulsory on a voluntary purchase.”
Assemblymember Kathy McClain, a Democrat, proposed a lottery at the 2003 Nevada Legislature. Today she does not commit herself to supporting it again, though she is still open to it. She says Nevada’s tax structure is already so regressive that it’s not a subject on the legislative radar screen.
“Regressiveness is not a good argument in Nevada,” she said. “People can play keno and penny slots here with the last pennies they have.”
Citing benefits of a lottery, she says, “Earmarked money, for one.”
But the Tax Foundation report says in spite of many efforts to earmark lottery money for schools, it often doesn’t happen: “The majority of lottery states earmark their lottery ‘profits’ for public education, but legislators are able to shuffle other funds so that lottery tax revenue supplants, rather than supplements, existing funds for education.”
Buckley says the crisis in Nevada classrooms is so severe that lawmakers may have to swallow hard and accept the lottery’s failings to get a school funding source.
“Only 23 percent of Nevada’s fourth graders are proficient in math. 20 percent of eighth graders are proficient in reading. What are we going to do about that? … What dedicated revenue stream are we going to use for textbooks and smaller class sizes? … And I think that’s why we’re looking at the lottery. Otherwise, we’ll continue to spend more education dollars on growth and not improving what we have now.”
A lottery in Nevada would require a state constitutional amendment. The 2005 proposal would have to pass two sessions of the Legislature and then be approved by voters in order to amend the constitution.
The 1864 constitutional prohibition has withstood several attempts at change. Nevada voters in 1889 voted to retain the ban. The Legislature in 1901 defeated a lottery proposal on opening day of the session even though promoter Dan Stuart, who arranged the Fitzsimmons/Corbett heavyweight prizefight in Carson City, had committed to running a Nevada lottery company if the constitution was changed.
During the Depression, though, Nevada nearly had a lottery. Desperate for money, lawmakers approved it in 1937, and it passed one house of the Legislature in 1939. In that battle, casinos argued that they didn’t want the competition, an argument that would become familiar in Nevada 40 years later.
For a long time only a few states tolerated lotteries, but things started to change rapidly after California voters approved 1978’s tax-cutting Proposition 13. The influence of that vote swept across the nation, starving governments for money. Quickly, lotteries became much more respectable because they permitted lawmakers to raise revenue without raising existing taxes.
But in Nevada, there was a built-in shield against lotteries—the gambling industry, which didn’t want the competition. Few legislators wanted to incur the industry’s wrath, even though proponents produced data to show that lotteries and casinos attract different gamblers. Casino lobbyists weren’t willing to take the chance, and even some lawmakers who were skeptical of the gambling industry had serious questions about whether it was wise to threaten the customer base of an industry on which the state was reliant.
During some legislative sessions, opponents of lotteries argued that a lottery in a state like Nevada, with such a small population base, would involve more administrative costs than the lottery would be worth. But that contention was never subjected to much scrutiny because lottery proposals seldom had chances of passage. With leading Democrats now supporting such proposals, anyone making that claim will likely be under pressure to validate it. The same is likely to be true of the claim about casinos and lotteries drawing different gamblers.
Issues of tax fairness usually receive less attention at the Nevada Legislature than those of tax stability and predictability. Two years ago, Gov. Kenny Guinn expressed the hope that the state’s tax system could be made fairer as a part of legislative scrutiny of his tax proposals, but the short legislative session did not allow for such considerations.
McClain, who sponsored the lottery at that session, says she will wait to decide whether to support a lottery again until after this year’s legislative committee review of the proposal is finished. She acknowledges being troubled by regressiveness.
“I don’t have an answer for you on that.”