In any basic economics course, you learn that there are four ways to distribute resources: Market, command, queue, and lottery. We're all very familiar with markets, and the ways they degenerate when left unbalanced by other forms of distribution. Command economy, meanwhile, is just governments directing where and to whom resources go, such as with aid programs and education, or on the negative side, to bloated military-industrial complexes and/or corrupt contractors. We in America have far too little contact with the benign form of command economy, but at least there is significant awareness of the problem, so I don't concern myself with that issue in this discussion.
Queue economies result when the price of a good or service is beneath the intersection of supply and demand, which can occur in either market or command contexts - e.g., waiting in line for a special sale at a store, or waiting for access to a doctor in a universal healthcare system. Lotteries, however, are something we in this country have plenty of experience with, but they haven't been properly designed to be economically beneficial. I explain why and what to do about it below.
Each form of resource distribution serves a key purpose: Markets are the most responsive to economic feedback; command economy corrects market failures and maintains social mobility; queue economy manages scarcity when prices are sub-market, either as part of a business strategy or a government policy; and lotteries introduce an element of chance into resource distribution in order to maintain dynamism and randomly elevate poor and middle-class people into the ranks of the wealthy.
But here is the problem with how lotteries are managed in the United States: All the money that goes into lottery awards comes from the other poor or middle-class people who play, so while it does produce an element of class-randomization, it only occurs at the expense of the people who play and don't win. This takes wealth out of the hands of the 99% and further exacerbates inequality.
A proper lottery mechanism would be free to those entered, entry would be universal, and each person could only be entered once per drawing. There's no reason to reward gambling by allowing more entries at a price and thereby increasing the chance of winning (however remote the chances remain), because that would introduce a bias into the selection and defeat the purpose of randomization.
Moreover, even if you keep lotteries as they are, 100% of the funds not used for operation and administration of the lottery should actually go into the prizes, and none should be used as a substitute for taxation in order to fund government programs. As noted, the players are overwhelmingly poor, working-class, and middle-class, meaning that using lotteries to fund government programs is just preying on gambling behavior in order to shift the tax burden further toward the 99% and away from the wealthy. This not only defeats the purpose of a lottery, but of the very command-economy programs that are funded - e.g., education - since their purpose is to create opportunity and social mobility.
So how should lotteries be funded? I would suggest a small wealth tax, a small transaction tax covering stock trades, and a large inheritance tax specifically committed to funding a national, universal lottery. Or, barring a nationwide system, at least state-level equivalents to accomplish the same objective. And another point: No taxes should be paid on the awards - that defeats the purpose. People who are already wealthy would be also be eligible, but given their relatively small number the probability is low, and since they would be the source of the funding there would be no net loss to the 99%. Since the whole point is randomization, making a 7-figure millionaire into an 8-figure millionaire might sound trivial, but it could have some of the same benefits as other randomized wealth increases. And they would be rare occurrences anyway.
Additionally, not all lottery awards would be jackpots, just as under current systems. Large numbers of people would receive random checks for a variety of small to mid-sized amounts, or else simply have it deducted from their taxes, depending on their preference. This not only has economic and social benefits, but think of the psychological benefits for people in general: As much as you enjoy being surprised with gifts by your significant others, friends, or family, people would have the same feeling about the lottery - basically like the opposite of jury duty. Instead of "Aww, shit, I've been selected for jury duty," you could get something else in the mail and be like "Whoa, I won a hundred bucks from the IRS lottery! Man, government ain't that bad."
Given consumer psychology, the vast majority of the small and mid-level awards would be spent immediately, injecting money directly into the economy rather than stagnating in some rich person's bank or assets. And since it's random, both geographically and in terms of amount, there would be little or none of the kind of inflationary effects that come from broader command economy redistribution measures. I can't think of a single substantial downside.