One aspect of UIGEA that has really struck me the wrong way is the provision to keep state lotteries and horse races out of the act. This part of the act shows the real motives of the US government, and I can tell you that it has nothing to do with them looking out for our well being. One “fun” little fact that I have researched about the state lottery provisions shows exactly why the US government is fighting so hard to keep the UIGEA enforced with its special provisions.
State lotteries are funded completely by consumers and generate millions of dollars each year to the US government. The financial aspects of state lotteries are so lucrative for the government that it is easy to see why they are fighting to keep them intact as they are. Here is exactly how most state lotteries are run and why they are so profitable for the government. I will use $1 million awarded to the winner for this example:
- State lotteries are composed of all the money generated for that week in ticket sales, and then simple math is used to determine the “jackpot.” In this example, we will assume the state generated $2 million in ticket sales for the week. The jackpot is about 50% of total ticket sales, so $1 million is to be awarded to the winner. (About 1/3 of the ticket sales goes towards education and is included as profit to the government.)
+ $1 million to the US government
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One lucky person wins the jackpot worth “$1 million dollars,” so now it's time for the government to pay up 1/2 of their profits, right? Wrong. The winner is given two options for its winnings. Option A allows for the winner to take $1 million in fixed payments over a 20-year span. Option B allows the winner to take a lump sum worth about half of the jackpot. Fixed payment Option A actually costs the government around $625k, as they immediately purchase an annuity for this amount to be paid in 20 years. Since they have generated the money up front from consumers, they have just profited another $375k for this week of the lotto. If the winner chooses Option B, the US government only forks out $500k of the $1 million jackpot, giving them another cool $500K pay day.
- Option A is + $1,375,000 already to the government
- Option B is + $1,500,000 already to the government
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Next the winner of the “$1 million” jackpot has just moved into the highest tax rates of the state. In this example, we'll assume the winner chose Option B and has $500k sitting in his bank account, less any withholding taxes the government may have collected. (This is the best option if you are smart and decide to invest most of the money to get a better rate of return than with fixed payments.) Come tax time, the winner will owe roughly $200K more in taxes. Yes, that's right. As a regular consumer, the taxes would be as high as 40% of the total winnings. You are luckily not subject to paying income tax on top of all that. Well, only because the winner would end up with close to nothing left of the winnings.
+ $1,700,000 direct pure profit to the US government
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Now this “lucky” winner can use the $300K for whatever they choose. Hopefully most of it will be invested, but it will most likely be spent directly back into the US economy.
+ any taxable money spent indirectly to the US government
So as you can see, it is almost sickening to see how much money is made from state lotteries on a minimum bi-weekly basis. Remember how the example was for a $1 million jackpot? The lottery of California's jackpot is set right now at $27 million for December 10, 2008. If you don't have a weak stomach, go ahead and run the numbers for how much the US government is going to make in the next 2 days in this wonderful “regulated gaming industry.”
http://www.plan-investments.com/index.asp
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