Quixotic. That telling word is my favorite entry in any dictionary. Quite appropriately, the etymological origins of that word can be found in Spain – notably and coincidentally, the location of this year’s ICE Barcelona conference – as “quixotic” alludes to the chivalrous yet futile 17th century quest by Don Quixote to tilt at windmills, a literary lost cause.
In the 21st century, the word remains resonant, particularly when discussing tax rates on gross gaming revenue (GGR) in the United States.
These particular windmills are gaming tax rates that have varied over the last half century between “high” and “higher.” State legislators who created the modern gaming industry have long pondered how to tax casinos, sports betting and other verticals. Their goals have been to authorize new gaming verticals while shielding themselves and their colleagues from any notion that they would be leaving money on the table by suggesting rates that would be too low. So, the alternative is to find a rate that is sufficiently high to inoculate them from such criticisms.
That real phenomenon – neither red nor blue, neither Democratic nor Republican – rests on the longstanding notion that taxes on gaming are paid by someone else, not the taxpayers of the state. It is rather perceived as a voluntary tax paid by those who choose to gamble.
Consider the case of New Jersey, which established an 8 percent tax on casino revenue back in 1976, when the only legal casinos in the United States were in Nevada. We who view New Jersey’s single-digit rate in 2025 can only marvel at the political courage that had to be summoned to suggest a rate so preposterously low. Surely, Don Quixote had slain his first windmill … Hardly.
Fifteen years ago, I received the following email from the author and sponsor of the 1977 New Jersey Casino Control Act, Steven Perskie, a former state legislator and chair of the New Jersey Casino Control Commission who is now enshrined in the Gaming Industry Hall of Fame: “In researching the drafting of the bill introduced in 1976, after the referendum passed, we found that the highest (combined) tax rate on gross revenues was 7.5 percent (in Nevada). For principally political reasons, we therefore set the initial rate for New Jersey at 8 percent. We assumed this would inoculate us from any argument in either direction (that the tax rate was too high or too low), and indeed we never had to defend that decision.”
Following the legalization of casinos in New Jersey, policymakers in state after state endeavored to follow that proven principle, inoculating themselves with tax rates that continued to increase, ultimately reaching rates that exceeded 70 percent on VLT revenue in Rhode Island.
During this period of tax rates shifting from high to higher, I met with policymakers in Maryland, which had authorized casinos. During this anticipatory period, these policymakers were in the same self-inoculating frame of mind and were considering tax rates of more than 60 percent.
While these public officials were excited about the prospect of more jobs, more revenue and more of everything from this future industry, the industry itself was slightly less enthusiastic. They had received interest from four potential operators … for five potential casino licenses.
I was asked a core question: What could Maryland do to generate more interest from potential casino operators? My answer: “The first thing I would do is lower that tax rate.”
A few moments of silence ensued, and then came the follow-up question: “What’s the second thing you would do?”
Maryland has since come down to earth. Reality has a funny way of doing that. The tax rate on casinos in that state is 20 percent for table games, while the tax rates for VLTs ranges from 39 percent to 60 percent, still high but arguably reasonable and clearly achievable.
However, in the current political environment, when it comes to establishing tax policy on emerging verticals such as iGaming, the political imperative for lawmakers to inoculate themselves from criticism is as alive in 2025 as it was in 1976.
The National Council of Legislators from Gaming States (NCLGS) recently recommended that tax rates on iGaming should range between 15 and 20 percent. That is a reasonable range, and lawmakers may be more inclined to target that suggestion as it carries the NCLGS imprimatur.
If that reasonable range does take hold, however, it does not mean that the time has come to quit this quixotic quest. Policymakers still need to understand one permanent, unassailable aspect of gaming taxes: They are a critical cog in a much larger economic engine.
The real fiscal benefit of a reasonable tax rate emanates from policies that incorporate various economic elements, including capital investment, employment, tourism growth, small-business development, urban renewal and other policy goals that are linked to the tax rate. Higher rates lower the return on investment, and lower returns will reduce those benefits.
The success of Las Vegas as a destination can be attributed, in part, to its place at the bottom of the gaming-tax food chain. Nevada policymakers have never been forced to confront the fear that a low tax rate meant that they were leaving money on the table. Quite the contrary. A low tax rate has resulted in a fiscal bonanza.
Nevada’s graduated tax rate on GGR, which tops out at 6.75 percent, generates about $1 billion per year, accounting for a significant share of the state’s estimated $12.4 billion biennial budget. Nevada’s general sales tax – not including any selective additional taxes on specific revenue streams such as live entertainment – accounts for about 60 percent of its tax revenue, helping to preclude any need for a state income tax.
Obviously, much of both the gaming and non-gaming tax revenue in Nevada is generated by out-of-state visitors.
I do not suggest or imply that the economic success of gaming in Nevada can be replicated, or that lower rates will magically transform an industry or a jurisdiction. I simply suggest that effective gaming policies must consider a broad range of revenue streams – i.e., lawmakers should focus on good policies, not good politics: Look beyond the tax rate on GGR to encourage more capital investment, more employment, greater visitation and more purchases of goods and services, all of which translates into more tax revenue.
Such policies may require that states use lower gaming-tax rates as a carrot, requiring casino operators to increase capital investment if they seek to secure lower rates. Such policies may also require that states forge stronger links between gaming verticals. A market in which iGaming is controlled by brick-and-mortar operators – which can reward digital players with on-site visits – will outperform markets that do not have such economic ties.
Even New Jersey, a low-tax state in which its casinos face serious competitive threats in coming months, could benefit from policies that encourage Atlantic City operators to justify even lower rates … if such rates were to be accompanied by greater capital investments.
Call that quixotic. Call that naïve. True on both counts. But the concept of a sound tax policy that is built on a broad economic foundation is also achievable, and that is an impossible dream that is worth pursuing.
