The Alaska Income Tax Lottery Proposal

Yesterday's Alaska Dispatch had these two front page headlines:

1.  Senate wants raffle to help pay for education
2.  Senate gets income tax bill from the House

Note:  The online headlines are a little different from the ones in the actual newspaper.  Also there were other front page headlines as well, like this one:  "Prospective musk ox farmers face some huge hurdles"

So, the gist is this:

The Alaska State House, controlled by a Democratic led majority has proposed to deal with Alaska's budget deficits with a plan that includes budget cuts AND revenue increases, including resurrecting the income tax that was abolished after the oil money started flowing into Juneau, back in 1980.

But the Republican led State Senate has a severe allergy to the word taxes that causes them to break out in a basic services cutting delirium when the word taxes, particularly income taxes, is mentioned.  BUT, a raffle is something they can get behind.

I'd note that I proposed a similar idea back in 2015: (it's near the bottom of the post)

"As I'm thinking about this, I bet Alaskans would be willing to add a lottery twist to the PFD.  I bet we'd be willing to lower the average payout if there was a chance to win some really big prize money for a few who are randomly selected.  I bet most Alaskans would give up 10% of their check for the chance to win $100,000."  

Income Tax Lottery

But there's another proposal I've been pushing for years.  Back in March 2011 I argued that we should tie a lottery into a) our income taxes and b) voting.  Here's an excerpt from that post which started with a story about adding a lottery component to radar speeding cameras to reward people who were driving the speed limit as well as ticketing speeders:

"So, for a long time I've thought we should use techniques similar to the speeding lottery to encourage other behaviors we want people to do.  Here are two examples:

1.    Income Tax Lottery: Your lottery ticket is your income tax form.  There need to be lots of winners here - maybe one big win nationally, one smaller win per state, and lots oflittle wins.  There might even be fewer and less lucrative prizes for people who file late.  I'm sure this would increase the number of filers, and the cost of the prizes would be less than the increase in tax revenues."

That old post was based on the concept of 'gamifying' or 'gamification.'  Here's a post from the gamification blog that talks about using games to make citizen participation more interesting.  NPR had done a report on using speeding radar cameras used to get speeders and red light runners to also reward people driving the speed limit.  Everyone driving at or below the speed limit would be entered into a lottery and could win prizes.  


The Obvious Compromise

So, if the Democrats want an income tax and the Republicans want a raffle, the obvious answer is to add a lottery into the income tax.  There would be a couple of big prizes and a lot of smaller ones - like getting double your income tax back.  That way, the wealthy who pay more income tax, stand to win more.  That should please the Republicans.  And if you pay no taxes, you aren't eligible.  

Alaska State Lottery - Governor [Shania Sommers] Announces Everyone Wins $2072

Screen shot of Shania Sommer announcing PFD amount 2015

Technically, it's not called a lottery.  It's called the Alaska State Permanent Fund Dividend.  PFD for short.  Individuals don't have to put any money down for a ticket.  No numbers are drawn from a hat.  But you can't be a winner unless you fill out an application to demonstrate that you've lived in Alaska the whole previous year, that you aren't a resident of any other state, and that you plan to stay.

The total amount each resident wins (the governor announced that total today)  is calculated by formula (from the PF website):

1. Add Fund Statutory Net Income from the current plus the previous four fiscal years.
2. Multiply by 21%
3. Divide by 2
4. Subtract prior year obligations, expenses and PFD program operations
5. Divide by the number of eligible applicants

The fund comes from monies the state collects from mineral related income.  The state constitution says: 

"At least 25 percent of all mineral lease rentals, royalties, royalty sales proceeds, federal mineral revenue-sharing payments and bonuses received by the state be placed in a permanent fund, the principal of which may only be used for income-producing investments."

Originally, it was thought that since oil and other minerals extracted from the state were not renewable resources, the wealth generated should not be used up by just one or two generations.  Instead, it should be conserved for the benefit of all future Alaskans.  It was envisioned to eventually serve as a trust fund for Alaska when the oil revenues ran out.  A small percent would be used each year to help fund the state.

But over the years, Alaska residents have come to view it as an entitlement.  Just this weekend one of the speakers at the Fiscal Future Forum talked about using the earnings of the Permanent Fund as the "third rail of Alaska politics." 

The payoff to Alaskans was originally determined by a formula that gave those who'd been in the state the longest, the most money - the payout was to be $50 per year of residency since statehood. But that was found by the US Supreme Court  to violate the guarantees of the Equal Protection Clause of the Fourteenth Amendment.  The law was changed to allow all Alaskans to receive the same amount.  

I did use the word 'win' in the title and many Alaskans view this as a 'win' though, as I said above, one they are entitled to.  

But I would argue that value of the PFD paid out to individuals may well be less than what we could do with all or even just some of the money were it used for needed services like schools or maintenance of state infrastructure.  

Undoubtedly, the PFD helps many Alaskans pay basic expenses.  And there are a number of Alaskans who economically do not need the dividend.  And there are others who spend their checks  on short term pleasures - drinking, an expensive vacation, etc.   Mine will go directly to the new water heater we had to install last week.  

Others have argued - though the exact proof is elusive - that the dividend attracts lower income migrants with large families from other states.  The $1884 per family member we got last year, sounds pretty good to a family of ten living on welfare.  And even with Alaska's higher cost of living it seems to be good enough to keep folks here.  

The lack of a state sales and income tax, plus the PFD means that most families come out ahead.  

It also makes people who demand that the legislature "spend my tax money wisely" sound pretty silly, because the only tax money they might possibly pay would go to local government for their sales or property taxes.

But then there are many ironies in "the last frontier" where people believe themselves to be ruggedly independent, yet we get the PFD and the state gets much more federal tax money than we contribute. It's easy to be indignant when you're ignorant.  

As I'm thinking about this, I bet Alaskans would be willing to add a lottery twist to the PFD.  I bet we'd be willing to lower the average payout if there was a chance to win some really big prize money for a few who are randomly selected.  I bet most Alaskans would give up 10% of their check for the chance to win $100,000.  

[Note:  I had this ready to post when the governor made the announcement, but was busy at the exact moment.  When I checked the video on the governor's  mulitmedia page, I was pleasantly surprised to see a girl talking about her college plans and how the dividend will help with that.  Announcing the PFD is one of the things that Alaska governors love to do because it's lots of free publicity on something everyone is happy to hear about.  Especially this year when the dividend is the highest on record (by $3). 

But this governor gave that moment of glory to  Shania Sommers.  Another sign that Walker is not only an adult, but also someone who is comfortable with who he is and happy to give away his  limelight to someone else.  Great move on his part. 

 

The Power of 5: A Lottery Commercial Catches My Eye

When I visit my mom I see a lot more television than normal.  Actually normal means I see bits and pieces people post online.  The ads tend to be better than they used to be - often great images, quick messages, even humor.

This one particularly caught my eye.  It's just good video.

[UPDATE October 28, 2014:  I've been getting lots of hits on this one today - mainly from Asia, particularly Taiwan.  So I came here trying to figure out what's happening.  First, the video I liked so much is now Private so I deleted it. But I found this Chinese ad (see below)
for the California Powerball. Maybe that explains the hits. I think Californians know they are competing for this with people from other states, but do they know that Chinese are in the competition too? That may raise the prize, but it lowers the odds. What are Californians going to say when the news shows a guy in Taiwan as the winner? But the money goes to a good cause right?

This is NOT the great video I originally posted.]



World Lottery Association - has members on all the populated continents, including California.  They are all state operated lotteries and they have a set of "Responsible Gaming Principles."  I found number six directly related to marketing lotteries. 

6.   "WLA Members will provide the public with information in an accurate and balanced manner to enable individuals to make informed choices about gaming activities within the lotteries’ jurisdiction. This commitment requires the following:
a. That the marketing of lottery activities and products be subject to reasonable operator self-regulation, and promote responsible gaming practices and informed choices.
b. That individuals shall be provided with accurate information about gaming and the risks associated with it, for example, organizing education program."

 I don't see anything in the ad above that could be considered "providing accurate information about gaming and the risks associated with it."  This ad goes directly to a person's emotional responses, in the guise of some sort of scientific setting. 


I'm ambivalent about lotteries.  My sense is that people who can least afford them, spend on them.  But I also recognize that people who are virulently against taxes, will happily give their money to the government for a lottery ticket.  Lotteries are for the statistically impaired.  But then people will point out all the winners - somebody will win!

Talking About Numbers found that the numbers of lottery winners were difficult to retrieve, but found that people were about 100 times more likely to be killed in a car accident than to win a lottery. (37,000 die in car accidents and "winning tickets that pay out one million dollars or more only number in the hundreds.")


And winning apparently changes people's lives, not always for the better.  The NY Daily News offers some anecdotes like this one:

 "I had to endure the greed and the need that people have, trying to get you to release your money to them. That caused a lot of emotional pain. These are people who you've loved deep down, and they're turning into vampires trying to suck the life out of me."

California lottery  tells us that they do good things with the money:

"Initially, the Lottery Act capped administrative expenses at 16 percent of sales and required that 34 percent of sales go to education.

In April 2010, the Legislature passed Assembly Bill 142, which changed the Lottery’s funding formula to follow best practices. Those practices have helped lotteries throughout the nation increase sales and earn more money for their beneficiary.

AB 142 limits administrative expenses to 13 percent of sales, while requiring that 87 percent of sales go back to the public in the form of prizes and contributions to education. The law gives the Lottery the flexibility to pay out a higher percentage of its revenues in prizes than it has in the past, but only if it does so in a way that increases the total amount of money that goes to public schools and colleges."

The World Lottery Association is headquartered in Basel, Switzerland, and they have a chart with membership fees. 

Gross sales	Fees
up to US$ 100 million	CHF 4,900 (@$5,208)
US$ 100 to 500 million	CHF 5,600
US$ 500 million to 1 billion	CHF 8,400
US$ 1 to 4 billion	CHF 14,000
over US$ 4 billion	CHF 21,000 (@$22,322)

 

If you want to keep track of what's happening in the world of the lottery business, there's a website called Lottery Insider.

I also found out the Power of Five also refers to

A dark story of the supernatural. Matt a young man with unusual powers finds himself in the midst of sinister goings-on. His investigations uncover a terrible secret - eight guardians are protecting the world from the evil ones, beings banished long ago by five children. But a shadowy group want to let the evil ones back in. Can Matt succeed in stopping them...