Thursday, November 29, 2012

Gambling On Our Future

All of the excitement about the $500+ million Powerball lottery pot this week got me thinking.



What if the federal government launched a gigantic lottery game of $1 billion weekly to help close our federal deficit?  If we can get this much interest in people buying lottery tickets for $500 million I wonder how much a $1 billion prize would do?

We could create a billionaire every week (maybe not a full-fledged billionaire because of the tax rates on the rich but certainly wealthier than Mitt Romney) and help pay our bills at the same time.  Talk about a plan that would advance the American Dream!

It would also be entirely voluntary.  No one would be forced to play or pay. This ought to appeal to the Republicans and the Libertarians.  On the other hand, it would raise revenues which the Democrats always like.

It is also a nifty redistribution scheme.  Instead of taking a lot of money from one rich person to pay the bills of a bunch of other people, you take a little amount of money from a bunch of people to make one person rich.

I think this might be the way to solve our debt problems.   Let's do the math.

Winners in lotteries typically get 50% of the amount of tickets purchased. Around 10% goes for payments for retailers and other administrative costs and 40% is left for the state government sponsoring the lottery.   Therefore, a $1 billion prize would require $2 billion in sales of which $800 million would inure to the federal government.

$800 million x 52 weeks would provide about $42 billion for the federal government in direct lottery proceeds annually.  At the 35% top federal tax rate and the 3.8% rate on the new Obamacare tax, there would be an additional income tax cost on the winners of $39 billion that the federal government would collect.  Of course, all of this tax revenue would not come upfront as the typical lottery pay-out is 30 years unless a discounted payment is taken upfront.  Let's ignore that complicating factor.

Therefore, a $1 billion lottery jackpot every week for a year in the United States would raise approximately $80 billion per year.

Our federal deficit is over $1 trillion per year.  A $1 billion lottery jackpot per week would generate less than 8% of what is needed to close our budget deficit.  This is about the same amount that President Obama's tax on the rich would raise annually.

You begin to see how miniscule any type of revenue increase is to solving the real budget problem we have when you view it from this perspective.  We are simply spending ourselves to death and spending the amount of time the President is on that side of the budget equation is doing little to solve the real problem in the fiscal cliff negotiations.

Given the choice between taxing the rich and the lottery, it might make more sense to go the lottery route. The Treasury raises $80 billion per year either way.  However, with the lottery, I create 52 Americans that will have more money than Mitt Romney in one year's time.  If I tax the rich, I will likely end up with fewer rich people in the course of the year.  And that is also likely to lead to job losses as the effects of those tax increases cascade through the economy.  That's basic economics. Take heart, for those who lose their jobs over the next year due to Obama's tax increases or Obamacare, you can always play the lottery!

I don't have any problem with Barack Obama gambling with his future or his money.  However, in everything that he does as President he is gambling with our money and our future.  And the future of our children and grandchildren.

The only sure thing about our budget problems is that we are spending way beyond our means.  The only sure way to solve this problem is to scale back what we are spending.  As I have written before, we can balance the budget in 10 years if we limit overall spending increases to about 2% per year.  If you have not seen the math behind my 2.22.22 budget plan, check it out.  (Please note that 22 is right in the middle of the numbers below!)

Considering the fact that many household budgets have had to actually cut back over the last few years, asking someone if they could live on a 2% yearly increase would seem relatively easy.  Why does Barack Obama think it is so difficult that he wants to risk our country's future with his high stakes gambling?


Winning numbers in the 11/28/12 $580 million Powerball Lottery Drawing

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