There is an ongoing battle these days between the corporate types who run Gaming, Inc. (as our bought and paid for colleague Jon Ralston calls it) and the far left libs who want the government to have more money and see the gaming tax as the easiest source.
And the reason real conservatives have trouble getting involved is that the argument on the gaming tax is based on a false premise on both sides.
The false premise on the part of the far left money raising crowd is that we need more money to spend in the first place. We don’t.
And the false premise on the part of Gaming Inc. is that somehow raising the tax on the profits of legalized gaming will cost them a single farthing. It won’t.
Let’s take the tax issue first, since it is always fun to educate corporate types about how their own industry really works,
Back in the days of old, say, before 1984, Gaming was essentially run by the most profitable tax-exempt company in the nation, many of whose CEO’s and COO’s were represented in court by our current Mayor, Oscar Goodman. That’s a very flowery way of saying the place was all mobbed up and the serious consideration about the gaming tax was actually collecting it as the real owners of gaming establishments had become very adept at removing large portions of the drop before it became subject to the tax.
That was called "skimming the cage".
It was very hard to levy even a reasonable tax on proceeds which were never counted.
After Steve Wynn learned how to issue junk bonds, the real mob took over and every dime was counted, taxed and reported because Wall Street bankers wanted to get paid their payments from the tremendous cash flow which casinos are able to produce.
Now unlike most business, gaming at its purest, produces only money. The closest business to gaming in that regard is actually what Wall Street bankers do for a living which is to produce paper representing money, but at least all that financial engineering results in some sort of paper product which you can buy and sell.
Gaming only produces net cash.
And most of that net cash is produced in a very interesting way. Off the top.
Gaming’s most profitable invention is the machine, slot or video poker. It produces by far the most net revenue in Nevada and its genius is that it is a pari-mutuel device. That means that when you play a slot machine you are NOT playing against the house. You play against everybody else and the house takes its win as a pre-determined percentage off the top. That is what our gaming tax is levied against.
For competitive reasons, we do not tell gaming licensees what percentage to make the rake off the top.
They can set it wherever they need to make a profit which will make their Wall Street masters happy.
Which means that the per-centage of the gaming tax is irrelevant since the higher the gaming tax the higher the rake, It works that way in every state which these companies operate in which the gaming tax is higher than Nevada’s which is to say almost all of them.
Not only do the gaming corporations not pay the gaming tax, neither do Nevada’s taxpayers unless they play the slots.
The only people who pay the tax are those who come here and play.
And the true effect of a raise in the gaming tax is that a person from Tulsa, Oklahoma who brings $500 to Las Vegas with which to play may return with only $380 of it as opposed to, say $420. (Those numbers are merely illustrative because they are completely dependent on how much play is involved, but they are, in fact, close.)
The rest of what we keep here, the entertainment, shopping and room dollars, stays exactly the same because they are not affected, for the most part, by the gambling budget (which most players call their ‘bankroll’) nor is the gambling budget affected by the non-gaming budget unless there is a big win in which case the non-gaming budget is usually increased.
When you hear corporate types complain about the damage that an increase in the gaming tax will do, it is because they simply don’t know these facts since most of them have little or no knowledge of the psychology of that guy from Tulsa with the $500 bankroll which is what keeps the lights turned on in Nevada.
Now, all that said, it is bad public policy to treat business tax increases as if they were unrelated to unnecessary government spending. The fact, here, is that the gaming tax could be raised to 20 percent, the industry largely unaffected would create a flood of new money to Carson City and it would all be pissed away within a few years and those who wanted the gaming tax raised would be looking for more.
One thing I learned early in my 42 year career in covering government at all levels is that the amount of government will always expand to fill all the available money, which is why government should NEVER be able to control its own income.
At a minimum, before any revenue is raised, the public should have a vote. It is an imperfect system but the only system which will ultimately work.
If the gaming guys really want to do the state—and themselves—a favor, they should forget about trying to have something else taxed and come up with a mechanism for setting the gaming tax rate which is cast in stone and not subject to the political whims of their natural enemies.
And, after they do that, learn something about their customers.