Taxing gaming revenues at the current rates could kill the golden goose, the president of the American Gaming Association warned the National Council of Legislators from Gaming States meeting at Harrah's Las Vegas Friday.
Frank. J. Fahrenkopf, Jr., the keynote speaker before the group of more than 100 participants, including about 25 legislators from gaming states, said the gambling industry has lived up to its part of the bargain by creating sorely-needed jobs while bringing local and state governments much-needed revenue.
"What we have experienced over the last few years is that the pressures of a struggling economy, coupled with the always highly-charged debate over gambling, caused a lot of legislators to forget Economics 101, upsetting that delicate balance by enacting unfair and unreasonable tax rates."
Fahrenkopf noted that in states such as Maryland and Pennsylvania, where racinos are being hotly debated, the suggested tax rate is 60%. In New York, he said, a law to allow racetrack slots had an original effective tax rate of more than 80%.
"High tax rates suppress capital investment and other expenditures, limiting jobs as well as revenue, thus reducing potential tax revenue for your state." He said that is what happened in Illinois, where the governor pushed through an increase of the state's top-grossing marginal tax rate of 70%. Instead of "stimulating a sagging economy by dramatically increasing gaming tax collections, (it) had the exact opposite effect, lowering gaming revenues by 10 percent from the preceding year.
"One of the most common misconceptions is that we're making too much money," Farenkopf said. "Are we making money? Of course we are. No company stays in business long if it's not. But are we making what people think we are? I highly doubt it."
He said the gambling industry is hurt by the perception that it is greedy and "fabricated social-cost arguments from anti-gaming forces." He said legislators see gambling as an "out" while trying to avoid general tax increases or cuts in services.
"One of the reasons I believe some lawmakers are quick to saddle casinos with unfair tax rates is the belief that their constituents have an unfavorable impression of gaming," Fahrenkopf said. "That couldn't be further from the truth. The level of acceptability of casino gaming has grown as more Americans have come to view gaming as a mainstream entertainment activity and valuable contributor to the U.S. economy.
"The obvious solution here is fostering a greater understanding of our business and how it works," he added. "If the existing partnership between our industry and your states is to continue to thrive, we need to work with you to emphasize the long-term implications of ill-conceived tax policy decisions, combat disinformation and implement science-based policies to address disordered gambling."