Are You a Simpleton if You Oppose State-Run Gambling?

January 10, 2011

Pennsylvania Governor Ed Rendell seems to think so. During a 60 Minutes interview on casino gambling, when asked about the possibility that Pennsylvania’s state-run casinos might be creating gambling addicts, he replied:

Those people would lose that money anyway. Don’t you understand? You guys don’t get that. You’re simpletons. You’re idiots if you don’t get that.

The interview can be viewed here. Here’s an excerpt from the transcript:

“Whether or not it’s their intention, the gambling industry is designing machines that can addict people,” MIT anthropology Professor Natasha Schull told “60 Minutes” correspondent Lesley Stahl.

And yet state after state is turning to slots as an easy way to raise revenue and increase jobs. And no state has been more aggressive in luring gaming in the last few years than Pennsylvania … .

So far there are ten gambling halls in the state, with plans for 61,000 slot machines. An 11th casino, on the drawing board, would be near the main entrance to the Gettysburg National Battlefield.

“No one is saying that people can’t gamble. This is about government using gambling to prey on human weakness for profit,” Les Bernal, who heads the national organization “Stop Predatory Gambling,” told Stahl.

Bernal and Massachusetts State Senator Sue Tucker have been fighting a move to bring casinos and slot parlors to the Bay State.

“We are in the worst economic crisis since the Great Depression and the daily voice of government to most Americans is: We’re going to push casinos and we’re going to push lottery tickets,” Bernal said.

As a revenue raiser it defies every principle. It’s regressive. In other words, it takes far more money out of lower income people’s pockets than higher income. It is cannibalistic. In other words, it eats other forms of revenue. When you have your citizens dumping two billion dollars down the slots they’re not buying a new car, and you lose that tax,” State Sen. Tucker said.

Two main questions are debated in this interview: Do slot machines cause gambling addiction, and what role should the state have in prohibiting, profiting from, or running casino-style gambling?

The first question is, of course, outside the scope of Tax Foundation research. Ultimately it will be left to medical researchers. (Articles on the topic that I have come across while researching the tax policy problems of state-run lotteries lead me to believe that the answer is probably: Yes, in a small minority of gamblers.)

Gov. Rendell claims that the compulsive gamblers in Pennsylvania would be “losing their paychecks” at other gambling venues or in other states if not at PA casinos. But surely there are people who would not travel to another state to gamble for the first time, but would be wiling to try casino gambling if there were a casino down the street. True, many casino patrons and lottery players are willing to travel out of state if their state doesn’t offer their game of choice. However, if there were not a large supply of new, local customers, then policymakers and companies would not be so willing to build casinos in new locations.

If we assume, at least for the sake of argument, that slot machines do cause gambling addiction in a small group of customers, the next question is, What role, if any, should the state play in gambling? You might think the only logical choices would be to prohibit it or allow it (and let adults make their own decisions about potentially risky activities).

But some states have carved out a third option: providing, running, and marketing gambling venues, taking on the role of a private casino to fill government coffers. The same is true of state-run lotteries: State governments have monopolies on lotteries, acting as a private business, creating and advertising new products. Some slot machines actually fall into the category of state-run lotteries: Some of these machines, such as those in Rhode Island and New York, are overseen by the state lottery agency and are called Video Lottery Terminals, or VLTs. Others are run by private casinos (Nevada) and taxed by the state (the best, simplest, most efficient way, from a tax policy perspective, for a state to be involved in the gambling business—as a tax collector), while still others are provided and run by the state outside of the lottery system (Pennsylvania), with the state taking a cut of the revenue.

Policymakers have two wonderfully effective methods at their disposal for balancing budgets: cutting spending and raising taxes. If they determine that more tax revenue is needed, they can choose from a number of taxes to levy, including general or selective sales taxes on privately run lotteries or casinos. If they’re determined to raise revenue by building, running, and advertising their own lotteries or casinos, why stop there? How about heavy advertising and catchy jingles for state-run liquor stores—or, even better, a state-run cigarette store, complete with tobacco ads?


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