A Statewide Coalition Opposing Gambling in Pennsylvania

TAXES

PLEASE NOTE!!  This was a very interesting article on taxes that covered gambling’s impact on your retirement funds and even your Social Security.

 

From Gambling in America Costs and Benefits by Earl L. Grinols, 2004, Cambridge Press, pages 180- 181

 

Regional governments continue to consider casino-expansion proposals, often appearing in related guises such as providing EGDs at racetracks.  The reason is that casinos can be taxed and the money raised appears to be “free,” or at least voluntarily paid.  Once a proposal is considered in these terms, it should be evaluated for what it is: a tax mechanism.  Because government always has the option of levying conventional taxes, such proposals should be compared to conventional taxes in terms of efficiency.  Conventional taxes cost the private sector between $1.17 and $1.57 additional dollar collected (see Chapter #7 and footnote #240): the cost per dollar of “tax by casino” is generally higher.

To show this, let C be the social costs per adult of introducing casinos.  Based on Iowa, let us set C  =  $163 (= $148 + $15).  Let L be the average loss for adults in the region to be served by the casino.  For purposes of discussion, let L = $400.  Finally, let t be the tax rate on casino revenues.  We will assume that t = 0.2, a not unrepresentative rate.  Then the tax dollars collected (a cost to the private sector) plus the direct social costs are tL + C per adult for the tL dollars collected.   The social costs per tax dollar raised is, therefore, 1 + C/tL = $3.04.  Even with a higher tax rate, the costs per tax dollar of “tax by casino” remains above $1.57 until the tax rate exceeds 71percent.  By a wide margin, tax by casino is inferior to levying a conventional tax period.

 

240.  See Ballard et al. (1985), p. 21.  This is the low end of the range estimated in the public-finance literature for sales tax, and below the preferred range of 1.318 to 1.469 of Browning (1987).  A lower choice lowers the estimated social costs of casinos.