by lostmenoggin
If you take the lump sum, they take half off the top before you even pay a penny in taxes. If you take the yearly payout, they pay you off over 30 years, which means they get to hold on to the principal and collect interest off of it while they pay you.
Powerball and Mega Millions have both been regularly getting up to over a billion dollars in the last few years. I think most people would take the full payout. Tomorrow is guaranteed to no one. This means they take 500 million dollars + off the top for themselves, then tax you from 24-37% on the rest. Funny thing is, they don’t explain WHY they initially take half of your money for the cash option before you get taxed, and how this is a “fair” system. The articles I’ve read avoid talking about the 50% they skim off the top with a cash option, and why they do it.
Say you win $1b. You take the cash option, so after they steal half your winnings, you are left with $500m. Then you pay taxes. Let’s say you pay the top tax bracket, which is 37%. The govt ends up with $685m, while you only get $315m out of one billion dollars. The government gets more than twice as much money as you do for the winning numbers. You don’t win the lottery, the govt does.