Three of the millions of players in the record $1.5 billion Mega Millions lottery will win big. But who’s guaranteed to win every time?
The odds of winning the lottery this big are infinitesimal, but if you do win, there’s one payment that’s 100% certain: Paying taxes on your winnings.
Consider, for example, the taxes on the $650 million jackpot in the giant Mega Millions lottery we’ve been discussing this week. If you elect to take these winnings up front in one lump sum, rather than over the years as annual payments, this would be worth about $470 million. That’s what gets taxed. Federal taxes take about 28% (possibly more, depending on your tax bracket). Then there’s the state tax on the winnings. Most states tax lottery winnings. California and Delaware are two that don’t. The states that tax lottery winnings take about 5%, more or less.
So, about $155 million would go into federal and state coffers, making the IRS the surefire big winner in the lottery. No matter what else happens in these colossal games of chance, the IRS is always the winner.
The losers are the habitual players—most often the poor, as we discussed earlier this week—who look to the lottery as the way to boost their economic circumstances. In fact, 21% of all Americans say that the lottery is the most practical way for them to accumulate big money, according to a poll by the Opinion Research Corporation for the Financial Planning Association and Consumer Federation of America. And, an even higher percentage of those who earn less than $25,000 a year said the lottery was the best strategy.
Do you think the lottery is just a tax generator in disguise?
Does the virtue of tax revenue outweigh the vice of gambling?
What do you think of the lottery as a financial strategy?
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Originally published at www.OurValues.org, an online experiment in civil dialogue.