If you favor putting a tax on stupidity, then vote for lottery

By DAVID MOON, Moon Capital Management
February 25, 2001

Politics, religion and money, all in one column.

In the next two years, Tennesseens will debate the creation of creating a state lottery. The arguments will be interesting, emotional and, at times, completely irrational. I predict almost all of them will be completely off the point.

A lottery should be first contemplated from its most basic question: what would be the purpose of a lottery? If the purpose is to allow legalized gambling, then we should remove the state prohibition on all forms of gambling. In fact, casino gambling, run by private business people, with profit motives and the discipline of competition would result in increased sales and property taxes - perhaps greater than the net proceeds of a state-run monopoly.

In fact, it is intellectually inconsistent to support a state lottery without also favoring casino gambling and horse racing. People who argue that the government must run the lottery in order to eliminate sleaze, cheating and the unsavory characters attracted by legal gambling have obviously never been to a legislative committee hearing in Nashville.

One of the most curious arguments in favor of the lottery is that Tennessee is only one of a handful of states without a lottery and that we are losing revenues to Kentucky, Mississippi and Georgia. This is sort of the 'Mommy, everybody else is doing it' argument and should be treated with the same respect as your mother treated it when you were five years old. If everyone else jumps off a bridge, does that mean we should, too?

Some proponents will argue the state budgetary implications for a lottery. Since a lottery is basically a business where people give you money and receive (net) nothing in return, a lottery should fatten the coffers of our state treasury. Most reports indicate that lotteries generate significant excess revenues in their first couple of years, when there is still a newness and novelty to them. After that, revenues actually decline until they reach an equilibrium level below the first couple of years. A lottery is not the solution to our state's budget woes.

One of my favorite arguments in favor of a lottery is that it is a voluntary tax. A state-sponsored lottery is merely a tax on stupidity. And since you get less of something as you tax it more, perhaps there are actually some societal benefits for exploiting poor math skills.

The arguments against a lottery often begin with moral overtones. But unless we are prepared to adopt a very specific state-imposed moral code, this is a difficult argument. Are all games of chance immoral? Does this include school-sponsored cake walks? What about football pools at the office? A Saturday night poker game with beer and cigars? Buying Internet stocks? The state already participates in several 'sin businesses,' at least as defined by many lottery moralists. Beer, wine, liquor, cigarettes ' the state participates in all of these businesses by its heavy taxation of these products.

That the state is even considering a lottery is the result of a government-imposed ban on an entire industry; the state constitution prohibits gambling. The state government contemplates profiting from this government-created monopoly, while still prohibiting its citizens from engaging in the same business.

The state of Tennessee should not be in the lottery business, precisely because that's what gambling is - a business. There are plenty of businesses the state might consider entering, particularly if it can create for itself a legally protected monopoly. But that is not the function of a state government. This should not be about morality (except that it is immoral for a government to outlaw a thing it chooses to do itself) or solving a funding crisis. This is about the basic distinction between the public and private sectors - and the proper purpose of each.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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