3/31/2012

How's that MegaMillions hangover coming along?

When I bought three MegaMillions tickets before everyone and his relatives gummed up the machines on Friday, I got more and more aggravated at people - not because of the size of the jackpot, but at the cavalier attitudes of people who had never played the lottery before, thinking they were going to be the ones with the winning ticket.

Outraged Liberal brings up a great question: why are people so willing to avoid taxes, but when a lottery offers a huge jackpot, people have no qualms in paying hundreds of dollars in tickets?

Purely for the entertainment value, lotteries are far easier and far less painless way to pay taxes (which lotteries really and truly are) than writing a check to either the IRS or the Massachusetts Department of Revenue every month - especially those who pay that 5.85% optional tax.  Conversely, the lure of winning the jackpot prize is designed by the states to extract as much money from the starry-eyed hopeful as possible, while certain taxes can be avoided by not doing the prescribed activity that activates those taxes.

That's also why some people blindly overpay their taxes intentionally - to get as big a refund as possible from the government.  That parallels when people pay the lottery so much without paying attention to the odds - to win the biggest jackpot they can.   A smarter thing to do is make sure the playing field is equal.  When people pay their taxes, the goal should be to have a refund as close to zero as possible, meaning your withholdings to the government is equal to what the government is expecting from you (you've had $2,000, they calculate you owe $2,010, you overpaid by $10).  The same thing applies to lotteries: forget the jackpot and try to break even.  If you play $10, winning $10 is optimal; anything extra is just gravy.

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