Pulse Price Report: What Does the Lottery Do for the Economy?

This week at the Pulse, we each stuffed a couple dollars in an envelope that would go toward lottery tickets. If you haven’t heard yet, the Powerball jackpot is estimated to hit the $1.5 billion mark by Pulse press time, a record-breaking payout.

But what does the lottery do for the economy?

That depends on how you look at it. Governments encourage it because what looks like a game is really a tax. A portion of each lottery ticket sold, usually about 25 percent, goes to state coffers. This can make up two or three percent of a state budget, which, in Wisconsin is roughly $1.5 billion. Usually, this money goes into a designated fund. In Wisconsin, that money is used for property tax credits.

On the federal level, the government scrapes off 25 percent of the winnings from a jackpot immediately. After that, the income is treated as traditional income tax. With a $1.3 billion jackpot, this will put anyone in the highest tax bracket at nearly 40 percent.

This depends on whether the winner chooses the lump sum payout or annual payments.

In a lump sum payout, the winner would receive the cash value of the jackpot, or roughly $806 million, and then have to pay income tax on that amount up front. Don’t forget about Wisconsin state income tax, which would add another 7.65 percent off of your winnings.

With annual payments, the lottery organization invests the money and pays out the interest over 30 years, which could add up to the original jackpot amount, depending on how the investments are made. Economists say the lump sum is likely the better option because you can invest the money yourself, perhaps in municipal bonds, which are tax-free.

But remember, all this money flowing into government programming is first flowing out of consumer pockets, essentially as a tax.

Small businesses that sell tickets do see a boost in sales of other items such as coffee and cigarettes as people are stopping in more frequently to buy lottery tickets, especially as the jackpot increases to record levels. So there is a consumer-based economic boost to the purchase of lottery tickets.

But research supports the theory that this disposable income is better spent on goods and services to boost the economy instead of lottery tickets, which leave only a small cut for local businesses.

Crop prices (Jan. 11)

Rio Creek Feed Mill – Algoma

Fox River Valley Ethanol – Green Bay

Basis: The difference between the local cash price for a commodity and the Chicago cash price (where the Board of Trade sets national futures price).

Gas Price Averages

United States: $1.97

United States one year ago: $2.14

Wisconsin: $1.88

Wisconsin one year ago: $2.04

Northern Door: $2.02

Sturgeon Bay: $1.90

Other Commodities

Gold: $1,100.70/troy ounce

Silver: $14.01/troy ounce

Oil: $33.32/barrel

Live Cattle: $1.32/pound

Lean Hogs: $0.60/pound

Sources: aaa.com, agweb.com, gasbuddy.com, cnn.money, Wisconsin Lottery audit