An official publication of Global Gaming Expo

AUGUST 2002 

EDITORIAL

More Tax Hikes to Come

By Charles Anderer, Publisher

Back in the day, GEM Communications held annual European casino executive conferences. This was before we realized there really is no such thing as the European casino industry. There's the Spanish casino industry, the French casino industry, the German casino industry, the Italian casino industry, etc. Oh, and then there's the United Kingdom, whose "European" status nobody on either side of the Channel is sure of.

At each conference, a certain German casino operator would rise and lament the fact that he faced a graduated tax rate of 98 percent. The Europeans in attendance would nod sympathetically. The Americans would look at each other in slack-jawed disbelief. The unspoken subtext of our disbelief: Europe, a nice place to visit, but I wouldn't want to have a W-2 there. 

Our beleaguered German would probably have gotten a kick out of the vociferous reaction of the American casino industry to the state of Illinois' decision to raise its graduated tax rate from 35 percent to 50 percent. That doesn't mean the Americans were wrong to protest; in the context of their political and economic life, a 50 percent tax rate is undeniably severe.

There's no questioning of intelligence here. No one, wherever on this planet they may be, willingly accedes to tax increases without a fight. And even if they say it's a good and necessary thing, they'll explore any number of avenues to lessen their fiscal burden.

Taken to the extreme, however, taxophobia can be ruinous. For one thing, it can lead to an inordinate amount of bad politics.

Income tax increases are tantamount to political death in America, but so is telling all those farm states they can't have their $190 billion farm bill, and so is telling the American people you can't spend $1 billion a day to protect them from all the evildoers on the planet, and so is telling them you're going to have to rethink that tax cut you enacted because we're running a $165 billion federal deficit when we thought there'd be a surplus. Nah, you can have all that and pretend your corporation is based in Bermuda, too. After all, we can't forget the contributors, now, can we?

The politics of everything for everybody has left the states in a fiscal ringer, too. Unlike the federal government, they are constitutionally bound to balance their budgets, and their collective deficits this year total $50 billion. The money has to come from somewhere. Since "sacrifice" is a dirty word in America (when, exactly, did that happen? Oh, right, it was those Clintons ... ), onerous cuts are to be avoided at all costs. New sources of revenue must be found. This, as we know, is the sword that cuts both ways for the gaming industry. 

So in Illinois, the golden goose, as UBS Warburg gaming analyst Robin Farley so aptly put it, became a sitting duck. And there are certainly more situations like it to come.

The fall of the American stock market is teaching state and federal government just how dependent they were on capital gains tax revenue in the 1990s. When things were good, state governments spent two out of every three new dollars of revenue on new or existing programs, according to the Cato Institute, leaving them in a very vulnerable position. Tobacco settlement money is being used to plug gaps in many states around the country, including New Jersey. A pack of cigarettes now costs $7 in New York City. That sin fuel is only going to run so far.

Given the present-day economic and fiscal realities, it's hard to see how the gaming industry avoids more tax hikes. If this makes you red with rage, try to keep things in perspective; there are plenty of people across the pond who would love to trade places with you.

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