State legislators need to beware that raising gaming taxes can not only hurt casino operators, but stunt gaming growth and reduce taxable revenues, according to Frank Fahrenkopf, president of the American Gaming Association.
"My message is that the tax rate you set in your state determines the very nature of the (gaming) industry in your state, not only for the short term, but the long term," Fahrenkopf said in the keynote address to the National Council of Legislators from Gaming States (NCLGS) last week at Harrah’s Resort & Casino.
"The industry will pay more under certain market conditions, but rates set too high serves as a barrier to market revenue," Fahrenkopf said. "It’s Economics 101."
"No audience is more important to us in gaming than the men and women that serve in our state legislatures," he said. "Policy making — good or bad — affects our industry."
Fahrenkopf stressed that the gaming industry needed to do a better job of giving legislators the tools to make informed choices.
"In the past few years, there has been a growing distance in this country between hyperbole and reality," he said. "Before you (legislators) can understand our business, it’s necessary to realize that many of our companies’ needs in your states are no different than that of General Electric, IBM or Coca Cola."
Fahrenkopf noted that heavy taxation of casino resorts by state legislatures is harmful to the gaming industry. And a crippled gaming industry will fail to produce the revenue that the states are hoping for, he said.
"You are in many ways our partners in a business enterprise," he said. "When casino gaming was legalized in your states and our companies were licensed there, we would be allowed to do business in exchange for creating jobs, stimulating capital investment and above all generating tax revenue for various state governmental services. For the most part, our industry has more than lived up to our part of the bargain."
The gaming industry, according to Fahrenkopf, developed thousands of jobs in Mississippi, and rebuilt downtown Detroit in Michigan.
"Enacting unfair and unreasonable tax rates hurts the gaming industry," he said. "Last year the Illinois governor increased the top gaming marginal tax rate to 70 percent. Even before that, the state’s rate of 50 percent was highest in the country. There is such a thing as killing the golden goose."
Fahrenkopf said that by raising the tax rate to 70 percent, it had a ripple, albeit negative, effect.
"Employment was reduced by five percent," he said. "Moreover, it sparked revenue increases of 11 percent across the river to neighboring East St. Louis, Missouri."
The AGA president also criticized reports that the gaming industry was approaching a trillion dollar industry.
"We’re making money, but not what people think we are," he said. "Our gross gaming revenues are reported monthly. Don’t I wish we had a trillion dollars in casino business."
Fahrenkopf concluded by citing surveys that reported the popularity of gambling now exceeding 85 percent approval across the board nationally.
"The level of acceptability toward casino gaming has grown," he said. "More Americans think of gaming as a mainstream activity. The 2003 polling showed 85 percent said gambling was acceptable, up from 79 percent. By age, the strongest was the 21-39 group at 91 percent approval. Gaming brings widespread industry."