The cruelest tax of all: How cynical lottery rule change ruined jackpots - Sound health and lasting wealth (2024)

Everyone dreams of one day winning the lottery.

But while jackpots continue to get bigger and bigger, a cynical rule change was snuck under the noses of the American people that may have ruined them forever.

Six jackpots have passed the $1billion mark since 2016, with three of the largest payouts in history coming in the last year.

And while one anonymous ticket holder from Maine became the second wealthiest winner in history last month when they scooped $1.35 billion, your chancesof joining them are unfortunately next-to-nothing.

In 2017, the officials behind the Mega Millions lottery updated their rules to ensure jackpots continually increase, enticing more players to throw in while reducing the odds of winning at the same time.

Now, experts are warning that the predatory lottery system has been rigged to bring in more revenue for the government, while poor communities are paying the price.

The 2017 rule change was made after Mega Millions officials became concerned that run of the mill wins could lead the public to lose interest in the game.

So to avoid ‘jackpot fatigue’, lottery eggheads decided to up the ante – teasing potential billion-dollar payouts while quietly reducing the odds of winning by widening the range of available numbers and increasing ticket prices.

According to The Washington Post, the rule change meant your chances of winning the regular Mega Millions jackpot was upped to302,575,350 – while the odds of also winning the ‘Mega Number’ for the big payout became 1 in 88 quadrillion.

As rollovers and extra players result in ballooning jackpots in both state and national lotteries – including a world record $2.04 billion prize last year– governments across America continue to cash in.

It’s no secret that governments make big money off the lottery. Only around 50-60% of lottery funds go to winners, whilein 2020 state and local authorities across the US funneled about $26.94 billion into their coffers – compared to just $1.69 billion in 1982, according to Statista.

State governments take a cut of around a third of each lottery jackpot, with the US census board estimating in 2015 that state-run lotteries raked in over $21 million for state governments – not to mention the even bigger payouts from multi-state lotteries like the Mega Millions.

But for individuals that are able to beat the odds, a rude awakening is also in store when they are also faced with a hefty tax bill.

This happened to one lucky winner last year in Illinois, who scooped a prize of $1.28 billion – at the time the second biggest in history.

Nearly all lottery winners choose to take the lump sum rather than receive their winnings in stages, which reduces the total winnings they receive. In this case, the payout was lowered to $747.2 million.

Notably, the IRS takes up to 37% of lottery winnings. This cut meant that after the jackpot winnings were sifted through multiple tax brackets, the total take-home payout came in at just $433.7 million, reportsForbes.

As millions of Americans continue to be sold a dream of becoming a billionaire, experts have warned that people that pitch in are more often than not the poorest and most desperate in society.

Those who study the system have argued that the lottery is fundamentally predatory as it targets communities that need it most, while most higher earners don’t feel the need to play.

Numerous studies have shown that lottery sales are higher in low-income communities per capita. And research by the Howard Center for Investigative Journalismfound stores that sell lottery tickets are disproportionately found in poorer areas across every state in the country that has a lottery.

States make more money from their lotteries based on how many people play, a dynamic that drives them to try and continuously and aggressively expand.

It is this system that is behind the huge growth in recent jackpots, the study found, as lottery ticket sales nationwide have skyrocketed from $47 billion in 2005 to well over $80 billion today.

But aside from adding to the attraction of potentially winning billions, this growing prize pool has also filled out the bottom line of state budgets across the nation.

Amid concerns that the lottery is disproportionately funneling money out of poorer communities, the study shockingly concluded that lotteries generated more revenue than corporate income taxes in ten states last year.

‘Poor people are collateral damage to a cause of raising money for what the legislators feel is good purposes… public safety, local schools,’ said Gregory Sullivan, former Massachusetts inspector general.

‘State governments become dependent on the revenue and any moral considerations get pushed out of view and out of mind.’

In a scathing rebuke of the lottery system, Les Bernal, the national director of Stop Predatory Gambling, condemned it as a form of ‘consumer financial fraud’.

He told KSL: ‘(Poor people) arehoping to pay their rent at the end of the month or pay an outstanding medical bill or put their kids through college or they just lost their job and they’re just trying to find a way to make ends meet.

‘And here you have what is a government program encouraging citizens to lose their money on rigged games.’