RALEIGH – Illogical arguments bother me.
Obviously, they bother me more if uttered by someone I otherwise agree with, or by myself (it’s a good thing that happens so rarely). But illogical arguments bother me even when employed by those with whom I am debating an issue. It’s unfulfilling. The sentiment is similar to wanting your team to play and defeat the best teams in the league, not just crush the worst ones. And it’s a simple matter of rhetorical aesthetics. Illogical argumentation is ugly.
It doesn’t get any uglier than the claim of the State of North Carolina, asserted Tuesday before a three-judge panel of the Court of Appeals, that the 35 percent of state lottery sales confiscated by government for general revenue is not a tax. Norma Harrell of the Attorney General’s office has to win this argument for the state because otherwise the North Carolina Education Lottery goes “poof.” The General Assembly did not approve the legislation creating it with separate votes on separate days, as the state constitution requires of all bills that impose taxes or incur debt.
So what did Harrell do? She made an illogical argument: that the lottery bill did not create a tax because playing the state lottery is voluntary. “Nobody forces somebody to buy a lottery ticket just as no one forces anybody to ride a toll road,” she said.
No one is forced to buy clothes, but if you choose to do so, you must pay a retail sales tax. No one is forced to buy cigarettes or alcohol, but if you choose to do so, you must pay excise tax. The purchase is voluntary, but no one doubts that the government’s take is a tax. It is a forced exaction used to fund general government. It is not a fee or toll, which are used only to pay for a specific government service or benefit. Fees and tolls are not covered by the relevant state constitutional provision (Article II, Section 23). Taxes are.
No one is arguing that the full price of the lottery ticket is a tax. Half of every dollar spent goes to pay prizes to players. That’s clearly not a tax. Another 15 percent goes to pay for the costs of running the game – including compensation for vendors and funds for administration and marketing. These are, indeed, fees for services rendered. They aren’t taxes.
But the remainder, the 35 percent, is a tax. Its sole purpose is to fund education and other general-government services. That’s the portion that lawyers from the North Carolina Institute for Constitutional Law argue, correctly, must be considered a tax according to the plain text of relevant law, precedent, and simple logic.
In response to probing questions from the appellate judges, Harrell argued that the 35 percent lottery tax isn’t akin to a sales or excise tax because the state lottery is a government enterprise, not a private firm upon which the state mandates a tax. But this distinction doesn’t wash. For one thing, the lottery is actually operated by private vendors. For another, customers at government-owned ABC stores still pay excise tax on the liquor they purchase. Government airports charge ticket taxes and collect excise taxes on airplane fuel. When asked by Judge Jim Wynn if the tax on motor fuels would no longer be a tax if the state assumed control of gas stations, Harrell preposterously agreed that, indeed, the gas tax would no longer be a gas tax. Wrong answer.
As it happens, while Harrell has to convince the judges that the lottery tax is not a tax, or else the passage of the lottery bill would be unconstitutional, ICL doesn’t have to win the tax argument to win the case. They have an equally compelling argument that the lottery bill was subject to the provisions of Article II, Section 23 because it would “raise money on the credit of the state, or pledge the faith of the state directly or indirectly for the payment of any debt,” as the constitutional language reads. On the day the North Carolina lottery began selling tickets, it promised to pay prizes to winners even though cash proceeds to date were obviously insufficient to cover the potential obligation. The commission also employed staff and began awarding contracts long before there were any proceeds. Both acts constituted pledging the faith of the state – perhaps “indirectly,” but that counts.
In enacting a state-run lottery in 2005, the state legislature acted unwisely. That’s their prerogative, which they exercise often. But because they did not hold separate votes on the bill on separate days – and, given the political machinations involved in securing majority votes in both chambers, they might not have been able to do that – the state legislature also acted illegally.
There’s a logical remedy. Do over.
Hood is president of the John Locke Foundation.