Last week, Massachusetts Governor Deval Patrick signed a compact with the Mashpee Wampanoag tribe allowing the tribe to open and operate a casino in the city of Taunton. The event was preceded by the approval of licenses for three casinos and one slot parlor within the state at the end of last year. Governor Patrick sought to bring the gambling industry into the state to create jobs and generate additional taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. revenue. The state stands to earn money from licenses bids, which “would start at $85 million” for casinos and $25 million for slot parlors; in addition to machine fees and a huge cut of revenues—25 percent of casino revenues and 40 percent for the slot parlor. The tribal compact provides the Mashpee Wampanoag a discount—it will be required to forfeit 21.5 percent of gambling revenues to Massachusetts rather than the full twenty-five.
Casino revenue will be used for a variety of purposes (see Sections 57 through 64), from funding the State Gaming Commission itself to specific earmarks for public health, local capital projects, education, transportation infrastructure, economic development, general local aid, and even a “Race Horse Development Fund.”
According to Mashpee Wampanoag Chairman Cedric Cromwell, the casino agreement “brings [the Wampanoag] another step closer to achieving economic self-sufficiency…while providing much-needed jobs and revenue to Taunton, Southeastern Massachusetts and the Commonwealth as a whole.”
The agreement will now be submitted to the U.S. Department of the Interior for approval. Some worry it will be rejected because of the large portion of revenues that will be given over to the state of Massachusetts. Critics have even gone so far as to say the proportion that must be forfeited to the state is “ludicrous.”
Last year’s legislation was an attempt to compete with bordering states (namely, Connecticut) that operate casinos and gambling resorts. The New York Times reported this may be a “potential bonanza” as other close states—New Hampshire, Maine, and Rode Island—become worried that they may lose their state revenues to Massachusetts. Bloomberg Businessweek pointed out that “hundreds of Massachusetts residents” flock to casino resorts in Maine, Rhode Island, and Connecticut each year. If casinos open within Massachusetts borders, why wouldn’t these residents simply remain within state to gamble?
We’ve reported multiple times on the issues associated with gambling taxes. First and foremost, taxes such as these are highly nontransparent:
“State governments keep a portion of lottery revenue after they award prizes and cover operating costs, and that portion is used to fund programs entirely unrelated to lotteries or gambling…If this revenue were simply put back into the lottery agency and used to continue providing lottery games, then it would be a user feeA user fee is a charge imposed by the government for the primary purpose of covering the cost of providing a service, directly raising funds from the people who benefit from the particular public good or service being provided. A user fee is not a tax, though some taxes may be labeled as user fees or closely resemble them. ; however, since this revenue is used for other government programs, or put into the general fund in some states, it is tax revenue, plain and simple.”
‘Since taxes provide government services enjoyed by everyone, taxes should also be paid by everyone. They should be levied at the same rate on all goods and services, not at higher rates on goods deemed unnecessary or unhealthy to the consumer (‘sin taxes’). The implicit tax rate on lotteries, however, is extremely high—much higher than any state’s sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. rate. “
State coffers aren’t the only thing the Governor hopes to stimulate. According to the Associated Press, “supporters of casino gambling predicted it will create as many as 15,000 jobs in Massachusetts, including 6,000 temporary construction jobs, and generate at least $300 million in new annual revenue for the state and its cities and towns.” Further, the state will likely collect approximated $300 million upfront when licenses are sold. But this revenue is far from guaranteed. States that expect such high revenues usually make overly-optimistic predictions and rarely earn the full amount they’ve projected—especially in light of the recent recessionA recession is a significant and sustained decline in the economy. Typically, a recession lasts longer than six months, but recovery from a recession can take a few years. .
Politically, it will be difficult to decline such promising revenue projections, despite the uncertainty associated with them. A Brimfield resident worried that “the money a casino talks about can be intoxicating and the numbers are really staggering.” Another told the Times, “there are people that will say, ‘How can you turn down millions of dollars?’”
More on Massachusetts here.
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