Chico Marx as Ravelli: “Well, let’s see how we stand.”
Groucho Marx as Capt. Spaulding: “Flat-footed.”
• Scene from “Animal Crackers,” 1930
Nearly a century after the Marx Brothers gave us that witty dialogue, we learn once again that the past is prologue. In 2024, as the political world is increasingly polarized and paralyzed, we can ask the question: Where does the gaming industry stand amidst all this political turmoil? The answer: flat-footed.
As an industry, the casino gaming industry is neither left nor right, conservative nor liberal, Democratic nor Republican. The gaming industry’s exemption from the vicissitudes of partisan politics is both a blessing and a curse.
On the blessing side of the ledger, that neutrality would be enviable to many private businesses as it means that gaming does not need to take sides or make choices that will make only one side happy. Indeed, there is no discernible partisan pattern as to which party or ideology is more closely attuned to gaming.
Those blessings, however, have matching debits. Unlike any other private industry, state governments do more than regulate gaming. They are actually in the gaming business. (Surely, you have heard of lotteries.) And while the role of states in other gaming verticals may be less direct, it is still quite significant.
When a state taxes gross gaming revenue at levels approaching or exceeding 50 percent, the state is not simply an overseer. It is a partner, and in some cases, a senior partner.
The embrace of gaming by political leaders is grounded in an unspoken but very real sense that tax revenues from gaming are “free.” Such taxes are, after all, paid through the spending of individuals exercising free will. And political leadership has clearly adopted a mature attitude that, when that will is no longer free, controls need to be adopted to address problem gambling. In a broader sense, however, the view of gaming taxes as free money remains dominant.
Gaming has expanded at an astonishing rate over the past half-century, with more than 1,000 casinos across the breadth of the United States, plus a nearly ubiquitous lottery presence, coupled with extensive sports betting, and the expected expansion of both iGaming and iLottery in coming years.
This bear-hug expansion of gaming can be attributed to several factors. One is the clear public perception that gaming can be effectively regulated, and is an industry that has demonstrated its good character, honesty and integrity. Another reason, less apparent but no less real, is that gaming tax rates are generally established on the principle that the highest, politically palatable tax rate is the most effective tax rate.
With few exceptions, the gaming industry has never been able to counter that principle with the more reasoned approach that the best tax rate is the one that best advances public policy. This principle is far more nuanced and dramatically more complicated, but is nonetheless worthy of consideration.
In emerging gaming states, licenses should be issued and tax rates established based on what will result in advancing policies that could include the highest levels of employment, capital investment, tourism growth, urban redevelopment and other worthy goals.
The same is true for existing gaming states. Tax rates are not forever, and deserve reconsideration over time. In an age when digital gaming is under consideration, every gaming state, from Indiana to Maryland to New York, New Jersey and beyond, needs to do more than simply layer such new gaming verticals onto their physical landscape. They need to consider gaming in total, and ask questions that are straightforward yet politically difficult: Can tax rates in certain instances be lowered if the state can be assured that such actions will result in greater capital investment?
Indeed, changes in tax rates can be structured to change the core business model of gaming operators when certain conditions are put in place. The burden of proof can be placed on operators to demonstrate how a lower tax rate will benefit the host state. States can seek and receive necessary assurances that tax cuts will not be used to fund dividends or to shift capital to other states, but they must first be willing to contemplate what has rarely been discussed: optimal tax rates.
While gaming benefits from the certainty that comes with being embraced by elected officials of all political stripes, the goal should also be to help those elected officials view gaming through an economic, rather than a political lens: What are the policies that will best advance overall policies?
That requires both political fortitude as well as a recognition that “optimal tax rates” and “highest tax rates” are not necessarily synonymous.
As an avowed Marxist (Groucho, not Karl), I offer yet another example in which being close can be too close for comfort. In the classic Marx Brothers film, “A Day at the Races” (yes, a gaming theme), Groucho’s character, Dr. Hugo Z. Hackenbush, is embraced by a beautiful woman who implores him: “Oh! Hold me closer! Closer! Closer!”
Dr. Hackenbush responds: “If I hold you any closer, I’ll be in back of you.”
Therein lies the lesson for the gaming industry. Celebrate your appeal to a broad political spectrum, but recognize that closeness comes in different varieties. Reasonable, thoughtful tax policies can also be embraced. As Groucho also noted: “Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies.”
The right remedy is developing policies on a state-by-state basis that make optimal economic sense, and yet remain politically palatable. That’s not funny. Just sensible.
