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Inequality

Why the Lottery is a Regressive Tax on the Nation’s Poorest

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Every year, Americans spend a mind-blowing $70.1 billion on the lottery. That works out to an average of $630 per household, representing more money spent on gambling than on books, sports tickets, recorded music sales, video games, and the movie box office – all combined!

U.S. consumption of lottery tickets

This is according to data visualization expert Max Galka, who published a series of posts and visualizations on the economics of the lottery in his Metrocosm blog. The numbers he provides are both astounding and alarming, ultimately making a convincing case that the lottery is a regressive and inefficient tax on some of the nation’s poorest people.

Let’s start with the economics. Here’s the math on the New York Lottery, which is a starting point to understanding the inefficiency behind lottos in the first place:

New York Lottery diagram

To sum up the math:

  • 51% of each dollar goes to tax revenue: federal, state, and municipal.
  • 18% goes to covering expenses, such as advertising or retailer commissions. This is the part that makes the process inefficient.
  • 31% of each dollar actually goes to the prize money, and that basically sums up the terrible odds behind winning in the first place.

In other words, for every $3 spent on the New York Lottery, less than $1 is paid out to winners, while the other $2 is going to expenses and tax revenues.

The House Advantage

As Max notes in one of his posts, the lottery itself is not a tax – but the artificially inflated price of lottery tickets ultimately ends up as an indirect excise tax:

House Advantage in Lottery

Choosing to play the lottery is voluntary. But much like sales taxes, the inflated price of lottery tickets is not.

It is illegal for anyone but the state to run a lottery. So unlike casinos, which face competition from other casinos, lotteries operate as a monopoly, so they can set their pricing artificially high, or equivalently, their payout rates artificially low.

While it is true that many people stay away from lottery tickets because the odds are not in their favor, there are groups of people that are far less fortunate. They and their families bear the brunt of inefficient lotto economics, as well as the house advantage.

Who’s Buying Lottery Tickets?

Lottery sales follow the 80/20 rule. It turns out that 82% of all sales come from 20% of the players.

Many of these players are compulsive gamblers, and many also come from lower income brackets.

In this post, which includes some key assumptions, Max shows that the “lottery tax” is a significant burden for many low-income households even in contrast with other taxes:

Lotto Tax

Want more perspective on lottery ticket sales? We previously showed a similar comparison of U.S. consumption numbers in real-time.

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Inequality

The Wealthiest and Poorest County in Every State

This infographic uses the measure of median household income to contrast the wealthiest and poorest counties in every U.S. state.

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The Wealthiest and Poorest County in Every U.S. State

View the high resolution version of today’s graphic by clicking here.

The average U.S. state is made up of 62 counties.

With so many counties spread throughout each state in the nation, it’s not surprising that we can find counties that exemplify almost any part of the American experience.

In this case, we’re comparing county-level data to look at the differences in economic opportunity within each state. More specifically, we are looking at the range of median household income, which is one proxy for the difference in economic status between counties.

Disparity by State

Today’s infographic comes to us from TitleMax, and it looks at the wealthiest and poorest counties in each individual U.S. state based on the measure of median household income.

Here are the five states with the biggest disparity between rich and poor counties:

1. Virginia: $102,800
Loudoun is about an hour’s drive to D.C., and it also happens to be the richest county in the U.S. in terms of median income. Further west in the state, bordering Kentucky and West Virginia, lies Buchanan County, which has a median household income of just $31,800.

 County NameMedian Income
Differential$102,800
RichestLoudoun$134,600
PoorestBuchanan$31,800

2. New Mexico: $86,500
In Los Alamos, known as the birthplace of the atomic bomb, median household income has exploded to $114,700 – meanwhile, along the Mexico border lies Luna, the poorest county in the state.

 County NameMedian Income
Differential$86,500
RichestLos Alamos$114,700
PoorestLuna$28,200

3. Colorado: $85,200
Just like the Colorado has a difference in elevation, it also holds a large difference in median income. Folks in Douglas County, which lies between Denver and Colorado Springs, take home $112,400 in income on average, while folks in Costilla bring in about $27,200 per year.

 County NameMedian Income
Differential$85,200
RichestDouglas$112,400
PoorestCostilla$27,200

4. Maryland: $80,900
Howard County, which lies between Baltimore and Washington D.C., has the highest median household income in the state. Meanwhile, it’s Somerset County at the south of the Delmarva Peninsula that has the lowest.

 County NameMedian Income
Differential$80,900
RichestHoward$119,400
PoorestSomerset$38,500

5. Tennessee: $79,700
Just to the south of the Music City sits Williamson County – a wealthy part of the state with $107,900 in median income. Hancock County is the poorest, and it’s tucked away in the northeast corner of the state.

 County NameMedian Income
Differential$79,700
RichestWilliamson$107,900
PoorestHancock$28,200

A Note on Cost of Living

While median household income can help point to disparities between counties, it is just one indicator.

It’s worth noting that the cost of living can often be cheaper in counties with lower median incomes, and this can partially offset the difference in some instances. For example, while Trinity County is the poorest county in California by median income, it’s also far away from San Francisco, Los Angeles, or Sacramento, and has a much cheaper cost of living and a different way of life.

In some ways it is comparing apples to oranges. Trinity County is completely rural, holds zero incorporated cities, and holds just 3,600 people in its largest community (Weaverville) – a far cry from the urban sprawl of L.A. or the booming Bay Area.

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Economy

Visualizing the Extreme Concentration of Global Wealth

A data-driven snapshot of global wealth distribution. The average person around the world is doing better, but big-picture inequality is still staggering.

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In recent decades, extreme world poverty has declined significantly and many millions of people have joined the swelling ranks of the middle class – particularly in China.

While these economic shifts are positive, it’s the other end of the global wealth spectrum that attracts the most attention. A high degree of wealth creation is amassed by those at the top of the economic pyramid.

The Top-Heavy Wealth Spectrum

Today, slightly less than 1% of the world’s adult population occupies the $1M+ wealth range. Despite their small numbers, this elite group collectively controls 46% of the world’s wealth, valued at approximately $129 trillion.

Concentration of Global Wealth

On the flip side of the equation, 70% of world’s population fall into the sub-$10K wealth band. This majority of people around the world collectively control a mere 2.7% of the world’s wealth.

Even as “the rich get richer”, there is good news for the majority. The percentage of people in that lowest wealth band has been shrinking over the years.

Moneyed Metropolises

Not only is money concentrated among a small portion of the population, those people tend to gravitate towards global cities such as London, Hong Kong, and New York.

In fact, 70% of ultra high net worth individuals (UHNWIs) – persons with investable assets of $30 million or more – reside in just ten cities around the world.

global wealth concentration map

According to Credit Suisse, emerging markets now account for 22% of growth in the UHNWIs category – up from just 6% growth in 2000 – with China alone adding over 16,000 UHNWIs to the mix. Many members of this elite class may generate their wealth in emerging economies around the world, but as we can see from the map above, the world’s richest people end up very concentrated, geographically speaking.

Global Wealth, by Continent

As the visualization below demonstrates, wealth accumulates in Europe and North America. This trend is so pronounced that it only becomes evident once the scale is adjusted to see the detail in the upper percentiles.

wealth distribution by continent

One thing is for certain – the world is changing quickly, and just as this graph would have looked very different 20 years ago, global wealth will almost certainly look different in 20 years time.

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