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A lotto BS

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Today's Sunday Comic urges us to be aware of the deception inherent in state lotteries.

 

Jim Gabour
29 June 2014

So this week all the UK papers have been full of the life and times of young factory worker Matt Myles, who won £1 million on the lottery.

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The Independent touts “Cougars, champagne and celebrities: Young lottery winner is living the dream”.

The Daily Mail shouts about his “incredible year long spending spree”.

And the Mirror makes news about someone making news:  “Lottery lad: How Euromillions winner documented his ten-week spending spree on Twitter”.

This is absolutely the best thing that could have happened to… the lottery.

Don’t do it.  Do NOT buy that feel-good lottery ticket, no matter how much money is theoretically out there.  Just don’t do it.  Tell your lying, cheating, morally-deprived government “NO!” for a change.

You will not do it.  You will buy the ticket.  It is a proven fact.  But at least think about it, even as you open your wallet. 

State-endorsed lotteries are the exact sort of scam games for which governments normally jail their constituents.  The lottos and the way they are run are blatantly deceptive and should be deemed completely illegal, especially as the people who are most affected are those who actually have the least economic hope or leverage. 

Except that the people who make the laws are calling the shots.  And that they are the real winners. 

Still, we buy the tickets and let go of that weekly buck or two, thinking that the relatively small amount of cash is the price of admission to being a working part of the world’s largest cumulative entertainment.  Such a thrill, imagining what we would do as winner.  More on that later.

But first – of what are we told is there, what is in actuality, there to be won?  An example from the NOV 2012 Powerball winners.  They win $587,500,000, and are handed an oversized check proclaiming that amount in front of dozens of cameras and media fertilizers, touting the program’s generosity.  But… of course the full $587.5M prize can only be taken as an annuity, in which payments would be spread out over 29 years and taxed each year. 

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Instead the winners are handed a single cash payment of $385 million, the max amount that can be claimed in a lump sum.   Hell, that’s still a lot of cash.  We can forgive the detail.  But the lottery prize itself has immediately taken back a “penalty” of $202 million dollars.

And, oops, also forgot to tell you, Mr & Mrs Winner, that the highest 2012 federal tax rate of 35% applies.  The tax bill on the now reduced $385M is $134,750,000.  So now the $587.5M is down to $250.25 M.  Worse, the feds only withhold 25% at the outset, so just in case you have forgotten that the other 10% is due at tax time, they will happily charge further penalties and interest.  And the top rate as of the 2013 fiscal cliff deal is now 39.6%.

Out of the $587.5 million that was widely proclaimed all over billboards in 23 states, the winner really only had the prospect of netting a maximum of 42.6% of that amount.  57.3% of the prize was really never even on the table.  It was going to the folks running the scam.  Your government.

Forbes detailed how last year’s $636 million jackpot dwindled to “$206M or less”:

What accounts for that dramatic shrinkage in the real after-tax pot? A recent Mega Millions revamp that hypes the advertised value of the prize (compared to its real one), along with higher federal tax rates for 2013.

 

First, the hype.  That $636 million number represents the total nominal (not inflation adjusted) dollars you or your heirs will get, before taxes, over 30 years if you are the sole winner and elect to  take your winnings in an annuity. If you take your winnings in cash now (as most winners do), you’ll get an estimated $341.2 million pretax—or 54% of the much touted pot.  Back in March 2012, when the Mega Millions jackpot hit that  record $656 million, its real pre-tax cash value was $471 million—72% of the advertised pot.

 

Huh? Turns out that in October Mega Millions changed the way the annuity is paid. Under the old system, you got the same nominal dollar payment in 30 installments, which meant you got more of your winnings (when adjusted for inflation) in early years. Under the new system, the nominal dollar value of the annuity increases 5% each year. In this new system, you’re getting more of your real winnings in bigger looking checks in the out years.  This inflates the nominal dollar value of the advertised annuity, but not its real value, which is, simply put, the cash value of the pot.

And then there are still state “winners” taxes to be deducted, which typically run 4-8.82%, New York of course at the top.

Certainly sounds like a scam to me. 

You can’t even give it all away, as you have to consider “gift taxes”. The winners can currently gift up to $5,340,000 (2014) before getting hit with a new 40% tax rate, though Congress dropped the top tax bracket from the 55% where it stood in 2001, the first year of George W. Bush’s trademark Reign of the Economic Oligarchy.   The W let rich folks keep more of their bucks in the family starting almost the very day he first snuck in the White House service entrance.

But already heavily-taxed winnings can indeed get taxed yet again.

Is winning worth supporting such an obvious fraud?

This spring three winners are sitting out whether or how to claim their winnings on two separate lotteries, worth a total of $839 million, obviously contemplating the fate suffered by what Business Insider listed as “lottery winners who lost everything.”

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One of the most famous meltdowns was West Virginia’s Andrew Jack Whittaker, who won his jackpot a dozen years ago.  Said Business Week:

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The state announced Whittaker had won $314.9 million—it said so right on the giant check they gave him on TV—but Whittaker never saw anything near that amount of money. Instead of taking annual installments over 29 years, he chose a one-time payout of $113,386,407.77. After taxes, he was left with about $93 million, approximately 30 percent of the sum reported in the newspapers and advertised by Powerball. The false impression left by reports of Whittaker’s record win was nevertheless a powerful lure for West Virginians to keep playing a lottery in which their chances of winning were negligible. (Where New York and Massachusetts, the two biggest lottery-playing states, take a mere 34 percent and 20 percent of the pot from their winners, West Virginia takes a full 41.5 percent.)

 

There is no shortage of lottery winners who go broke—enough to fill many seasons of reality television—but there was good reason to think that Whittaker, a successful businessman whose journey from rags to riches was the product of self-reliance and hard work, would make good use of his new wealth. The idea that 10 years later he would wish he’d torn up his winning ticket and thrown away the pieces would have struck the man and everyone who knew him as nuts. … “I’m simply a businessman who has seen his share of failures and successes,” Whittaker told reporters. “My personal life is my own, and I make no excuses for my actions.”

 

Whittaker’s faith that he could handle his enormous lottery winnings with the same qualities of self-reliance, hard work, and aggression that had allowed him to master previous challenges was tragically misplaced. 

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A blow-by-blow of his demise is described in the same Business Week article.  We are the same age, Jack and I, but the once-successful and hard-working businessman is now ruined.

Whittaker had been pulled in by the same sort of aggressive marketing that his own pre-ruin image was later used to reinforce.  As the New York Times described the process:

...lotteries may well be the single most insidious way that state governments raise money. Many of the people who buy lottery tickets are poor; lotteries are essentially a form of regressive taxation. The odds against winning a big jackpot are astronomical — far worse than the odds at an Atlantic City slot machine. The get-rich-quick marketing — by government, let’s not forget — is offensive. One New York Powerball ad shows a private jet emblazoned with the words “Kevin’s Airline.” The tag line reads: “Yeah, that kind of rich.”

Again, read that this is the government lying to us.  On purpose and right out front.  How many deceptive advertising criminal actions and lawsuits have these very same institutions and their courts waged these last years as simultaneously lotteries bloomed in nearly every state?  And as their percentage rises, the federal government and IRS are actually getting more of the original dollar number advertised as the jackpot than the winner.

It is a large process with many governmental forces involved, and they are organized. 

The North American Association of State and Provincial Lotteries (NASPL) was founded in 1971, the organization in 2014 currently represents 52 lottery organizations.  Just in North America.  Dedicated to getting rich, one dollar at a time.

You can tell that this lottery manipulation has been a personal sore point for quite a while.  My Dad buys them every week, and it is hard for me not to chide him.  It is a game, and he has always liked gambling.  But even I caved to the fool’s bait, just once in my life, egged on by multiple bourbons and gambling aficionado friends on my fiftieth birthday.  Needless to say, when I finally found the slip in my pocket almost a week later, remembered what I had done, and compared it to the winning numbers, I had matched nary a one.  Zip.  But the government now had some of my money, for that dose of nothing.  I had given in.  The fact still rankles.

There is a fine book, “Life Lessons Learned from the Lottery”, by a wise gentleman named Don McNay, that delves deeply into what that brief brush with the gambling life should have taught me, that richer is not necessarily better, especially after a certain point.  The lesson was reinforced by CNN:

One of the more recent studies on the subject, published in the Proceedings of the National Academy of Sciences last year, found life satisfaction rises with higher incomes up to a household income of about $75,000, and levels off afterward.

 

In general, the research on the happiness of lottery winners is mixed. A 2006 study in the Journal of Health Economics of lottery winners in Britain who won up to $200,000 found an improvement in their mental well-being two years later. But an often-referenced study from 1978, comparing 22 major lottery winners with people who did not win, found no difference in happiness levels between the two groups.

Matt Myles is traveling the world, spending his money, advertising the absolutely true and resonating fact that the lottery will make it all right.  This creature is self-sustaining – the lottery, not Matt.  It makes us want to believe that those hundred-million-to-one odds are not a factor, that giving money to corrupt corporate beasties is OK as long as we get a momentary thrill when the ping pong balls drop.  Not doing any damage, you say.  Paying for hospitals and roads, you think.

But this is, in fact, our government misconstruing the facts.  And if they think that we don’t care that they are lying to us about this one, this absolute flat-out piece of deception that they are committing in full view twice a week in a hundred locations and a million local markets, what else will they try and put past us?

Remember the US Federal Aviation Administration that issued regulations this last year that finally required those nasty airlines and devious ticket sellers from offering super-low-priced tickets and then sticking half a dozen hidden fees and charges onto those once-low prices?  Remember how, at the federal government’s urging, we were supposed to be outraged at the deception?

Remember how Food and Drug Administration recently jumped on the overriding use of the term “organic”, and on advertising unproven health benefits of foodstuffs, and how that agency now requires concise labeling with all contents and nutritional benefits clearly attached, and all hype and borderline claims removed?  Remember how we were again supposed to be uniformly pleased that the government made the food suppliers agree to be honest about what they were feeding us? 

Remember “Wag the Dog”, the 1998 Barry Levinson film where the president’s spin doctor hires a Hollywood producer to invent a fake war that will hopefully turn the public’s attention away from a presidential sex scandal? 

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The government marketing yet another reality in “Wag the Dog”

Not that far from what is happening with these millions of scraps of paper.  Look over here, not there, they say. 

When Matt Myles gets home, if he gets home, congratulate him.  But don’t give the national lottery thieves another dime. 

It just reinforces what they already know:  that they can lie to us, and get away with it.

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