While no government actually labels its lottery a tax, the games properly fit the definition of one. After lottery winnings are paid out and administrative costs have been covered, the leftover money is transferred into state coffers to pay for state programs. This is a tax.
This increasing reliance on lotteries to fund state governments is troubling, as these taxes disproportionately fall on low-income individuals.
A slew of studies in the past two decades has found that low-income people spend a greater portion of their income on lottery tickets than do high-income individuals, meaning lotteries are a regressive way to collect tax revenue.
State lotteries only pay out an average of 60% of their gross revenues, a payout vastly inferior to those of slot machines and table games, which offer payouts in many cases above 90%.
American state governments are following the wisdom of Jean Baptiste Colbert, Finance Minister of King Louis XIV of France, who said
“The art of taxation consists in so plucking the goose as to get the most feathers with the least hissing.”