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Is The Lottery Really A Tax On The Poor And Stupid?

by J. Money on Thursday, February 16, 2012

lottery thumbs up

(Guest post by Tino, a fellow blogger who’s also intrigued by the lottery)

I think it’s fair to say that most people have heard the theory that the lottery is a tax on the poor. Some would even go so far to say that it is a tax on the “stupid.” What does this really mean, though? And, is it true?

Who wants to win the lottery?

I can answer that question, but let’s take a step back first. First, let’s consider who wants to win the lottery. I mean, everybody would like to win the lottery, including J. Money so that he could buy his Mercedes c300 dream car. But who wants to win it the most? To answer that, let’s look at a fictional person, I’ll call him Billie Bob. Billie Bob lives in a run-down part of Any City America. He is a high school drop out. He lives in a government-subsidized apartment. He gets food stamps to feed his hunger. He doesn’t have a permanent job, but takes whatever work he can get, usually at minimum wage. All of his friends, family, and neighbours are pretty much in the same boat too.

Billie Bob is living in the bottom-rungs of society. He will never be able to climb the social ladder and live like the upper class do – Not on his own accord. And, he knows it. But he also knows that he has a chance to do it by playing the lottery. He needs just one big win and he will instantly be upper class. In fact, he talks about this dream every day to his family, friends, and neighbors – you know, the people that are in the same boat as him. They have the same dream too, reinforcing Billie Bob’s belief that the dream is possible. Further reinforcing belief are the countless stories about lottery winners he sees on the news. So Billie Bob spends as much money as he could on lottery tickets, more than he could afford, waiting and hoping for the big day that he will win.

Is Billie Bob Stupid?

Billie Bob is poor. He spends money on lottery tickets. You’d probably say that that also makes him stupid. Thus, you might also say that the lottery is a tax on the poor. Winning the lottery is, in their belief, their only way to financial freedom because they don’t have the resources to get that financial freedom any other way. A study conducted in Chicago gives credence to the theory that poor people spend a disproportionate amount of their income on lotteries. Yes, even though he is fictional, Billie Bob’s story rings true with countless people across America.

The lottery is a form of voluntary tax

The lottery, then, could be considered a form of voluntary tax, a financial charge against a taxpayer that goes to the state (Most lottery proceeds go back into the community). That is, money going to the state without much of a personal return on it, and a disgustingly low probability of winning a jackpot. So, with poor people playing the lottery disproportionately more, some would consider the lottery to be a tax on the poor.

Is J. Money stupid?

So, yes, the lottery could be considered a tax on the poor or, even, a tax on the stupid. However, that does not mean that only poor and stupid people play the lottery. J. Money, for instance, plays the lottery and he’s a smart guy. Many other smart people have played and won. Dr William Steele is a dermatologist; he’s well educated, successful, and smart – And, he won a $189 million Powerball jackpot in 2009. Jim Sensenbrenner is a politician with a net worth of $11 million. He plays the lottery, but unlike Billie Bob, he doesn’t play it to try to achieve financial independence – he already has that. Yet he won the lottery multiple times, his biggest being a $250,000 win.

Dr. William Steele and Jim Sensenbrenner are neither poor nor stupid (neither is J. Money, I think). So, why then would we say that the lottery is a tax on the poor and stupid? It’s all relative. Neither Dr. Steele nor Jim Sensenbrenner spent more than they could afford on tickets.

If you, yourself, spend more than you could afford on an impossible dream, that would not make financial sense. However, buying a few tickets here and there won’t hurt you and that would allow you to dream – What if you win? What would you do? Dreaming like that is healthy, but spending more than you could afford is not.

How many of you play the lottery? What would you do if you won? ;)

————
Guest post by Tino, who runs a lottery blog, showcasing big winners from around the world.

EDITOR’S NOTE:  Remember how I did that lottery experiment a cple years back? Buying 100 scratch-offs to see what would happen?  Well, Tino took it a step further and bought 1,000 tickets in his most recent experiment!! Haha… do you think he did better than I did? ;)

(Photo by b r e n t)


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{ 41 comments… read them below or add one }

1 Too Funny February 16, 2012 at 7:29 am

Here’s a tip for your Mercedes. Use the Section 179 >6000 GVRW deduction for an ML 350 and you’ll get an immediate depreciation of 25k. If you’re income is around 110k, expect a 40% deduction or 10k off (viz. both sides of Medicare & SS, Federal, State, and County Income Taxes). And with the killer USAA deal, it’s the way to go. Buy around December so that you can more easily achieve 100% business use for the first year. I’ll buy another one this year and maybe we can double-down at EuroMotorcars and save even more $$ come december.

The lottery is good. To many pay too little taxes, and there’s a general correlation between income and aptitude.

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2 Chris February 16, 2012 at 7:50 am

The expectation of winning the lottery is negative. They may not be stupid, but they are acting irrationally.

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3 Vanessa Pagé February 16, 2012 at 9:12 am

Personally, I like managing my money and saving/planning etc. I don’t play the lottery because if I were ever to win, it would take away the fun of managing my money. I try to explain this to people and I generally get blank stares so here’s the analogy that I came up with: If you’ve ever played The Sims, you know that there’s a cheat to get unlimited money. The game however, gets really boring soon after having unlimited funds because you get stuck in a cycle of build, renovate, decorate etc.

Also, Billie Bob may win the lottery but class is definitely not based on NW alone — look at the Beverly Hillbillies — I doubt that they would be considered in the high echelons of society…

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4 Michelle February 16, 2012 at 9:21 am

I’ve tried playing. Me and the BF bought over 300 tickets one time just to see what would happen. We want around an extra $50, but nothing too exciting.

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5 Heather February 16, 2012 at 9:37 am

My husband and I play on a whim every now and then. We certainly don’t do it every week or even every month. I do think it’s a waste of money, however, I also think it’s a waste to buy just one ticket. If you have hopes of winning, you really need to buy multiple tickets.

We talk all the time about what we’d do if we won the lottery. My husband is far too generous and would probably give a good portion of it away to family and friends. I, on the other hand, don’t like to just hand over cash. I’d prefer to pay their off debt, pay for college for my sister and brother-in-law, and buy them material things. My in-laws aren’t good with money and I’d hate to hand them over $500K and watch it be thrown down the drain. I’d rather pay off their house, upgrade their cars, and payoff debt and take them on a nice trip then fork over a wad of cash. We’ve also agreed not to go crazy on an overly huge house and I’d spend my time rescuing animals or running my own rescue sanctuary for dogs.

It’s fun to dream…

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6 Mama Geek February 16, 2012 at 9:44 am

I play occasionally. I figure the $5 is worth the entertainment of planning what to do with my winnings and the minor excitement of checking the numbers. My plan of action is to contact my lawyer, form a trust, collect my money and hen change my address, phone number, etc. and only contact people I know and like.

My grandfather who was a food scientist and vp for several major food companies (obviously neither dumb nor poor) actually won a minor lottery in NY. Hopefully winning runs in the family.

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7 Well Heeled Blog February 16, 2012 at 10:07 am

I play EVERYTIME my office plays, and my fiance plays everytime his office plays (and my mom and dad play everytime THEIR office plays). Hahhaa. Are you seeing a pattern? There is nothing worse than having all your coworkers hit the big one and you missed you because you were too cheap to put down $1 or $2.

My motto is… somebody’s gotta win. Might as well be me! ;) That hasn’t actually worked or anything like that…

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8 Jeremy Streich February 16, 2012 at 10:42 am

Smart people can do stupid things. I don’t think it is a poor on the stupid, so much as a tax on those who can’t (or for irrational reasons won’t) do the math.

The odds of winning the the jackpot in Powerball is 1 in 175,223,510.00
The odds of winning $1 Million is 1 in 5,153,632.65
The odds of winning $10K is 1 in 648,975.96

Odds of being struck by lightning is 1 in 600,000.
Odds of being struck by lightning twice 1 in 9,000,000.

So, you have a higher probability being struck by lightning twice than winning the jackpot, and a greater chance of getting struck by lightning than winning an amount over 10K.

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9 Brent February 16, 2012 at 10:51 am

“Billie Bob is living in the bottom-rungs of society. He will never be able to climb the social ladder and live like the upper class do – Not on his own accord. And, he knows it.”

- I find that statement VERY disturbing. When i was part of the population that was receiving the EIC with two kids, just out of college and only an internship to show for it, if I thought I would never be able to “live like the upper class” and I “knows it” I would never have been motivated to work at all. The only reason Billie Bob “knows it” is because nobody tells him otherwise and people, such as you, the author, continue to reinforce the idea that he is stuck in poverty and he’ll continue to believe it. If someone actually gave him some hope that hard work, savings, and smarts would pay off, I believe he wouldn’t be shackled to this grim picture you paint for all of Billie Bob’s life.

Statistically speaking the lottery is a tax on the poor. A simple google search showed me that was the case as hundreds of articles point out that a large percentage of the frequent playing population are poor. Sure you will have outliers in the data where rich people play but by and large it is the poor who are subsidizing the lottery.

Maybe if i have time today I will find a sample of data that contains the income of many lottery players and calculate the confidence level that given any one person who buys a lottery ticket, that person is poor (i will also need to figure out what constitutes poor).

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10 Holly February 16, 2012 at 12:25 pm

Here, here Brent. It’s easier to feel sorry for yourself then to go out and make something of yourself. A lot of people simply need an attitude adjustment…

Buying more tickets to increase your odds is a gambler’s mentality which makes no sense at all – if you buy 100 tickets versus 1, you’ve increased your odds so marginally it barely counts.

Playing the lottery is like going to the casino – do it if you’re looking for some entertainment. Otherwise, take that dollar you might otherwise spend on a ticket and save it.

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11 Marianne February 16, 2012 at 12:34 pm

I’m not sure if you’re saying that Billie Bob doesn’t have the means to financial freedom because that’s what he perceives or that’s what you perceive… Just so you know, neither my husband nor I have our high school diplomas. We are not poor. We work hard to maintain a fairly comfortable standard of living. We have only mortgage debt. We have two vehicles. We bought our home at the age of 20 and we have a combined income of about $85,000 (CAD). I wouldn’t doubt that we may have worked harder than some to get here but I don’t feel terribly slighted because of that.
We don’t buy lottery tickets. My husband has joined in a work pool a couple of times- primarily because we saw that episode of ‘The Office’… yeah. That would suck. I don’t actually know how to buy a lottery ticket since I never have. Do I have to pick a whole bunch of numbers? How are you supposed to choose? Do you have to get all the numbers right to win? Do you have to pick them in the right order? The numbers on the news don’t mean anything to me. Probably because I didn’t finish high school…

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12 Young Professional Finances February 16, 2012 at 1:04 pm

I’ll play the lotto once in awhile, just for fun. I never really expect to win but it’s always fun to hope! I’ll just consider that $5 some cheap entertainment – it’s cheaper than going to the movies these days.

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13 retirebyforty February 16, 2012 at 1:10 pm

I play when the jackpot is huge! It’s fun to dream about what I’ll do with the winning. A powerball ticket now cost $2! That is too expensive. 100% price increase? I quit playing for now.

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14 Yana February 16, 2012 at 1:31 pm

I don’t play the state lottery, because I object to supporting a government that does not provide its people with health care; also, the California Lottery had the motto, “Our schools win, too”, yet the schools constantly ask for more money and say they can’t use the lottery funds for “that” – whatever “that” is. The funds are mismanaged. This bothers me, since if I mismanage our money and toss it away, I don’t have victims to hit up to reimburse me for my own lack of smarts/responsibility.

My husband likes to play the lottery, and does regularly. He doesn’t spend much. I am not above gambling, but prefer other types, and the reasoning is the same as you explained. We will never of our own doing obtain the financial position we want, and gambling gives us the only opportunity we can see.

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15 Heather February 16, 2012 at 1:34 pm

I don’t play the lottery because then I would have to keep playing. I can get a little obsessive about things. The week I didn’t play, would be the week I *would’ve* won. If I changed my numbers, the week I did that, my original numbers would win.

Yeah, I know, it’s unlikely in both cases, but I can’t convince my brain of that. Not playing makes me that much saner. :)

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16 Tino February 16, 2012 at 1:47 pm

Jeremy,

I know the old “you have better odds of getting struck by lightning than of winning the lottery” schtick is a good way to get people to visualize how hard it is to win the lottery. It’s true, it’s hard to win the lottery, but it’s not true that you’re more likely to get hit by lightning.

The premise of the schtick is that you’ll buy just one lottery ticket in your lifetime. If that’s the case, then you’re more likely to get hit by lightning. Nobody buys just one ticket in their lifetime, though.

There was a study done that showed 91 people got struck by lightning in North America in 1996. In that same year, 1,136 people won at least a million dollars in the lottery. This year, it’ll be close to 2000 people that win at least a million in the lottery.

Notwithstanding, it’s still against the odds that you’ll win the lottery. You shouldn’t bet on it.

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17 G. Money February 16, 2012 at 3:16 pm

I found this article to be a bit condescending … You really harped in on the fact that Billie Bob was doing bad. However, consider this Billie Bob’s debt to income ratio is probably a lot better than the well to do person who owes thousands of dollars on student loans, car loans, and mortgages. Billie Bob actually looks a lot better financially than the couple who purchased that 300k house in 2008 which is now only worth 175k. Or better yet what about the people who “invested” with Bernie Madoff … wonder if they were smarter than Billie Bob. How come no articles have ever been written about how stupid those people were/are? We show sympathy towards them but make fun of folks like Billie Bob. Think about how much faith we have in our 401k … we are extremely confident that it will be there for retirement, when in fact it’s kind of like the lottery (with slightly better odds).

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18 J. Money February 16, 2012 at 4:34 pm

@Too Funny – You’ve played this game before! I love it ;) And I totally saw that USAA deal too – it greets me every time I log in! haha… which is a lot.
@Chris – And having fun while doing it ;) At least that’s my goal.
@Vanessa Pagé – Oooooh I like that way of thinking. It WOULD take out the fun out of it for sure, though if given the choice I think I’d much rather have the extra money instead of the excitement of playing the game, haha… there are tons of other games out there to play ;) Or, you can try winning again and giving 100% to charity/etc – THAT would be a challenge.
@Michelle – That’s pretty good actually! I always lose when I go all in like that ;)
@Heather – Those are great ideas :) I always think to give out free cash too, but paying off debt would be AWESOME to be able to do for someone – good thinking.
@Mama Geek – That’s the part that sucks :( Having everything public and needing to change all your info…. I get whay they do it (proof real people are winning, etc) but man – def. makes it unsafe too.
@Well Heeled Blog – YES!!! hahaa…. have you seen The Office episode on that? When everyone in the warehouse wins except for a few and they all quit? Haha… it’s awesome. And another reminder to keep doing it just in case ;)
@Jeremy Streich – I think you’ve officially scared me. I geniunely believe I’m gonna win the lottery at some point which means I’ll be struck twice according to your odds! Haha… not good.
@Brent – For sure, we def. need to keep motivationg people to keep pushing forward and going for their goals. Great comment!
@Holly – That’s what my dad always said ;) “All it takes is 1 lottery ticket to win. Why should I buy 10?” Haha…
@Marianne – You saw that episode too! Haha… yes, hilarious – I loved it :) And congrats on all your success too, that’s awesome. Proof you can be successful if you hustle.
@Young Professional Finances – HAH! True that.
@retirebyforty – I know,just happened over the New Year I believe… but shouldn’t that mean the jackpots will be a lot higher, a lot faster now?
@Yana – Huh. Not sure what “that” means either, but def. interesting to hear your stance here :) Thanks for sharing it with us.
@Heather – Haha, at least you know yourself! I get like that when I play poker ;) Every time I fold I always swear the next card would have completed my hand, haha… it’s also why I’ve never smoked a cigarette or have done drugs (except for alcohol) – I know I’ll like it and get addicted!
@Tino – There’s too many stats for me to know WHAT is true ;) Just promise me I wont’ be struck by lightning and we’ll be okay, cool? (Also, thanks again for guest posting today! Intersting convos coming out of it so far…)
@G. Money – You don’t think it’s wise to invest in the stock market? Where would you/do you put your money then for a decent return? I have no doubts it’s flawed and has turned loony tunes up in there, but I know that if that goes completely down hill we’ll have more things to worry about than our investments :) So maybe it’s good to stockpile guns, food, gold, shelter? Haha.. one of my friends is actually doing that. He’s convinced it’s just a matter of time until money as we know it disappears. Actually, here’s a blog post on it with some good discussions of after-crash issues: Is Gold The Answer to A Market Meltdown?

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19 Tino February 16, 2012 at 5:08 pm

G. Money,

It wasn’t my intention to be condescending. I never actually meant that someone that’s not doing well financially can only hope to win the lottery to get out of his funk. Rather, i tried to write it from the viewpoint of someone who has totally given up on making it on their own. Sorry if you took it the wrong way.

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20 LB February 16, 2012 at 5:33 pm

When talking about J. Money in the article you say “Yet he won the lottery multiple times, his biggest being a $250,000 win.” Just out of curiosity, how much has J. Money spent on the lottery in total and how much has he won? Does the expense even out with the wins?

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21 Tino February 16, 2012 at 5:56 pm

LB,

The article says that Jim Sensenbrenner won the lottery multiple times, not J Money. I’m assuming Jim Sensenbrenner spent a lot of money on lottery tickets.

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22 G. Money February 16, 2012 at 6:51 pm

Tino,

I agree 100% with your point … It just came across as Billie Bob is not making wise financial investments because he’s poor and uneducated and that smart, middle-class people clearly make better choices. So, I’ll argue that Billie Bob’s decision to invest in the lottery might be better than the following:

- Racking up tons of credit card debt for the airline miles or cash back rewards … (9k just to earn $350 round trip tickets to Disney)
- 100k in student loan debt for a Masters in Philosophy … (Currently, living at home with parents and operating the fork-lift at The Home Depot)

I don’t mean to be a kill-joy on this topic … but maybe some of the things that we invest in are just as foolish as Billie Bob playing the lottery but we’re just not smart enough to see it.

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23 Tyler S. February 16, 2012 at 6:56 pm

It’s a cheap (usually?) thrill, and a fun game, and if you win, sweet! Obviously going overboard and spending money you need in order to pay bills is DUMB.

I agree with G. Money here saying that we make some pretty dumb investments too.

Man, we’re all dumb!

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24 Diane February 16, 2012 at 11:03 pm

Never played it. I guess, looked at purely as an entertainment expense, it’s really no stupider than my collecting Bollywood dvd’s, but still – I do kind of think it’s stupid anyhow.

To each his own. One man’s fish is another’s frog. Or something like that.

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25 Maggie@SquarePennies February 17, 2012 at 12:26 am

It’s just a form of gambling where the attraction is the excitement of “something might happen.” It’s the possibility of winning and the immediacy of the moment that makes it exciting. The same can be said for other forms of gambling including at casinos and with horse racing. It’s mostly irrational since it’s based on emotions. As long as the gambler only bets what he can really afford to lose there is no stupidity to it. It’s just entertainment. Could that money have been put to better uses? That’s a judgment made by others. And since the proceeds go to help the community an argument could be made that it is put to good uses. It’s not my cup of tea, but so what?

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26 Bmoney February 17, 2012 at 1:16 am

I play once in a while but never powerball or mega ball. Those odds are just to out their and I stay away from scratch offs (which are a complete rip off plus). It should be a form of entertainment and not something to lean on or expect. You may win or lose, but remember the house always wins in the end.

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27 BE @ BusyExecutiveMoneyBlog February 17, 2012 at 2:12 am

Great post J Money. I recently wrote about this same topic. While playing the lottery is fun for entertainment purposes, it is not a sound retirement plan. Unfortunately, 1 out of 3 people in America feel it is. I do agree that everyone loves the rags to riches story.

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28 Money Infant February 17, 2012 at 5:38 am

It isn’t stupid to play the lottery (even if your chances of winning are miniscule), but it is stupid to spend money you need for food, clothing or shelter on the lottery. Nor is the lottery a tax on the poor, except for the fact that it is by it’s nature a regressive tax. I think it is this fact that make people consider it to be a tax on the poor.

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29 Melissa @ Little House in the Valley February 17, 2012 at 8:37 pm

Many people in Billie Bob’s position use playing the lottery as an excuse to not try to improve their financial situation themselves. It is easier to pin one’s hopes on a dream that has very little chance of happening, i.e. winning the lottery rather than struggle to improve their financial situation.

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30 J. Money February 19, 2012 at 12:22 pm

@LB – HAH! I’m pretty sure I’d let everyone know if I were to win the lottery like that ;) Even just to prove the lottery is awesome!!
@Diane – “One man’s fish is another’s frog” haha… haven’t heard that one before ;)
@Maggie@SquarePennies – EXACTLY. It’s the thrill of it all that gets me interested so much – and since it IS “extra” money from the entertainment budget, it serves its purpose nicely. Good comment my friend :)
@Money Infant – Yeah for sure – VERY stupid to spend money on lottery instead of the essentials. That’s a big no no.

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31 Christopher February 20, 2012 at 11:11 am

We went to the casino this past weekend. Best part was my mom gave us money for gambling. Win win for me and the wife. I like those kind of lotteries when it is not your money that you are spending to play!

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32 René De Beaumarchais February 20, 2012 at 1:12 pm

The trick to win the lottery is to play scratch tickets because the odds are simply greater. They can be as high as 1 out of 2 of winning SOMETHING (free ticket to the big jackpot).

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33 Roger C. February 20, 2012 at 8:25 pm

Any who looks at the odds for the Powerball and the Mega Millions are really sad. That’s not the point. It is usually over $200 million for a reason. Pretending you’re smart for not playing it really isn’t. I once was two numbers away from winning the whole thing. I had the powerball and three of the regular numbers. If I got the last 2, I’m quite sure most of you would be harassing me for money, so quit the elitist act. I know human nature quite well.

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34 J. Money February 22, 2012 at 11:02 am

@Christopher – I remember getting money like that at the arcades growing up :) Was so much easier to spend than when I had to use my own allowance money! Haha…

@Roger C. – WOW, that’s crazy close! What did you win instead of the jackpot then? Was it at least in the thousands range?

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35 Roger C. February 22, 2012 at 6:26 pm

Sadly, only $150. Yeah, I know, it sucks. It was the Mega Millions, I think, actually. I’ve come close before, and I’ve won more times playing just a buck than the times I went crazy and bought 5 or 10 when jackpots were high, but that’s relatively rare.

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36 J. Money February 23, 2012 at 10:08 am

Oh jeez, haha… def. sad indeed. It seems you have better luck than most people I know though – myself included ;) Hope you hit it big one day! (But only if you promise to come back here and write a guest post on the experience)

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37 Jennifer April 3, 2012 at 12:13 pm

The author of this article sounds like he has more in common with his fictitious “Billie- Bob” than he realizes. Today’s poor are not only the uneducated illiterates who survive off of government programs. Many are well educated and over 50, and deemed no longer useful. Many are also people who have had their homes foreclosed upon and can’t pass financial screens for good credit when they apply for jobs. To lump all poor people into one bread basket is a joke and it only adds to the problem. Is this a tax on the poor? No. But it certainly is a great marketing scheme to bilk the poor of their needed funds. Then again, many people (like me) only pay a buck for a ticket when the lottery gains become huge. For us, it is a dalliance.

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38 Dan November 20, 2012 at 8:34 pm

I think the lottery is a great way for the government to collect taxes on those 47% that don’t pay any taxes through income.

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39 pet August 18, 2013 at 4:34 pm

there’s a reason the lottery exists the government makes huge money on it

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40 Wayne March 10, 2014 at 1:41 pm

Hey! A while back I made a small web tool that basically generates a tonne of fake lotto results (I think that I generate about 9 results per second). I figured that it would be interesting to witness the odds with my own eyes. Take a look and let me know what you think: http://thisinterestsme.com/lotto/ So far, nobody has won the grand prize on it, as far as I’m aware.

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41 J. Money March 12, 2014 at 7:57 am

That’s pretty interesting :) I like your recent post on people using “defiantly” vs “definitely” too, haha…

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