Minnesota lottery a regressive tax on the working class, state data show • Minnesota Reformer

The Minnesota Lottery delivers tens of millions of dollars to state coffers each year, funding everything from parks to education to gambling addiction services.

“Each dollar spent on a lottery ticket in Minnesota not only fuels the dreams of potential winners, but also drives millions of dollars toward crucial state services and vital projects that protect our environment and natural resources,” wrote Minnesota Lottery Executive Director Adam Prock in the agency’s latest annual report. 

Left unsaid in that report: Those millions come disproportionately from people in Minnesota’s low-income neighborhoods, effectively turning the state lottery into a highly regressive tax on the working class, according to a Reformer analysis of retailer-level sales data obtained through a public record request.

In the richest 5% of Minnesota zip codes, where households earn an average of $140,000 per year, annual lottery sales add up to about $100 per adult. That per-capita expenditure increases as you head down the income spectrum, peaking at about $275 per adult in the bottom quartile of zip codes.

Lottery expenditures dip sharply again at the absolute bottom of the income distribution, likely in part because money is tight enough to make tickets prohibitively expensive. In the poorest 5% of zip codes, where families bring in an average of $45,000 per year, the typical adult spends about $150 on the lottery annually. 

As a share of income, however, lottery expenditures in the poorest 5% of zip codes are roughly four times higher than they are in the richest 5% of communities. 

“Just like any other product, buying a lottery ticket is an individual choice and entirely voluntary,” a Minnesota Lottery spokesperson said in a statement. “We work closely with our partners in the responsible gambling community to promote best practices and highlight resources available for those who may need assistance.”

The analysis above encompasses all zip codes in the state containing at least one lottery retailer, which are collectively home to more than 95% of the adult population. One source of potential uncertainty is the unknown share of lottery customers who routinely purchase tickets outside of their home zip codes. 

The data, however, comport with other zip code-level analyses of lottery expenditures, including ones conducted here in Minnesota. They also align with the results of different methods of analyzing the relationship between lotto sales and household income.

None of the findings are surprising to people who study lottery and gambling spending in the United States. Not long after New Hampshire authorized the first modern state lottery in 1964, social scientists recognized that the games were effectively taxes on lower-income families enticed by the possibility, however slim, of a lucky break that would bring them financial security.

The Minnesota Lottery began operating in 1989. Today a little over half of Minnesota adults buy tickets at least once a year, while about 3% play weekly, according to a 2020 Department of Human Services report.

Total lottery revenues have grown steadily in recent years, roughly doubling between the mid-2000s and today. That rise is dwarfed, however, by stratospheric increases in other forms of gambling, including pull tabs, horse racing and casino games.

A recent analysis by The Economist shows a similar relationship between income and lottery purchasing across 24 states. However, the spending gradient between rich and poor households in those states is steeper than Minnesota’s, possibly owing to two factors: Minnesota is a relatively high-income state, with lower-than-average levels of income inequality.

The dramatic increase in spending on the lottery and other forms of gambling comes as the state Legislature has attempted to legalize sports betting. So far those efforts have been unsuccessful, stymied by legislative deadlines and an inability to agree on how proceeds would be split between groups, like Native American tribes and horse race tracks, with a stake in the betting.