State Lottery

Nevada lawmakers have repeatedly considered creating a state-run lottery to generate additional state revenue. In so doing, however, lawmakers have purposefully ignored the advice of their own consultants.

In 1988, Nevada lawmakers commissioned a tax study from the Urban Institute and Price Waterhouse.¹ This study is still regarded as the most significant and comprehensive examination of Nevada’s fiscal structure.

The study contains an entire chapter that examines whether Nevada should adopt a state-run lottery and concludes that the state should not do so for several reasons.

Key Points

State-run lotteries do not generate significant revenues. Lottery revenues account for less than 3% of total tax revenues, on average, in states that administer these games.²

State-run lotteries are not stable revenue sources. Nationwide, state lottery revenues fluctuate dramatically from year to year – for many reasons. Data shows that lottery revenues have increased by as much as 250% percent year-over-year, and have decreased by as much as 50% percent year-over-year. This high degree of volatility renders budgetary planning based on these revenues extremely difficult.³

State-run lotteries are a highly regressive form of taxation. Studies indicate that individuals at the bottom of the income scale spend a far higher percentage of their income on state lottery purchases, making state lotteries a highly regressive implicit tax. In fact, as Price Waterhouse says, “The information indicates that as a tax, lotteries are among the most regressive.”⁴

In Nevada, a state-run lottery would compete directly with the private sector. Nevada is most unique among the states in the extent to which private-sector gaming is a legal enterprise. A state-run lottery would compete directly with private forms of lottery such as keno. Moreover, the state already draws revenue from these private-sector games through its array of gaming taxes.

Recommendations

Do not create a state-run lottery. As Price Waterhouse – the Nevada Legislature’s own tax consultant – has concluded, “A state-run lottery fails every test of a ‘good’ tax policy. In Nevada, gaming should be left to the private sector.” ⁵

¹ Ed. Robert D. Ebel, A Fiscal Agenda for Nevada, The Urban Institute and Price Waterhouse, Prepared for the Nevada Legislature, University of Nevada Press, Reno, 1990.
² Ibid, p. 418.
³ Ibid, p. 420.
⁴ Ibid, p. 422.
⁵ Ibid, p. 17.