Reuters, U.S. Lotteries and the State Taxman, by David Cay Johnston:

The long-term shift in tax burdens from capital and corporations to individuals and their activities is perhaps best illustrated by the rise of state lotteries, the most heavily taxed consumer product in America.

Because gambling is voluntary, there is little organized opposition to levies on gambling winnings. Contrast that with the ferocious, well-organized and well-financed opposition to income taxes, especially corporate income taxes.

In 11 states, lotteries provided more revenue than the state corporate income tax in 2009, Tax Foundation data show. …

State income taxes typically equal five percentage points or so of income recognized in a state, whether paid to individuals or corporations. Overall, lotteries pay out only about 62% of their revenue as winnings, an implicit 38% tax rate on lottery tickets. On top of that, people who win $600 or more have their take reported to federal and state tax authorities and must pay income taxes of up to 45% on their windfalls. This shift from corporate to lottery revenues was unimaginable just half a century ago, when gambling was a crime everywhere except Nevada — the residue of scandals in the 1890s that killed off widespread legal gambling.

These days the 44 states with lotteries (plus the District of Columbia and Puerto Rico) get 44 cents from this form of gambling for each dollar of state corporate income tax. On top of this are taxes in those states that license temples of chance.

Even more remarkable is the continuing popularity of state lotteries despite significantly high tax rates, noted Charles T. Clotfelter, a Duke University professor of law and economics who co-authored pioneering studies of lottery winners two decades ago. …

Fred Thompson, a Willamette University professor of public management who has served on two Oregon commissions on state revenue, sees the rise of lotteries and the relative decline of state corporate income taxes as “something of an outrage,” but one that he said makes perfect political sense. Like many other public finance economists, Thompson sees lotteries as a tax that falls mostly on the working poor, albeit voluntarily. And Thompson is among those who see the corporate income tax as a levy mostly on corporation owners, who by definition are wealthier than most people. So why have lotteries, seen as a vice half a century ago, become ubiquitous today? “Because there’s no resistance to them, while taxes, especially corporate taxes, are opposed,” Thompson said. Plus, it’s an easy way to raise revenue. …

State governments have never been particularly heavy taxers of corporations.Back in 1963, when lotteries were still illegal, so lottery revenues were zero, state corporate income taxes raised about $10.4 billion in today’s dollars. That’s almost 60% of the $17.9 billion or so that state lotteries bring in today.