Property Taxes and Gambling: An Uneconomical Alliance

September 18, 2007

It was only a matter of time until two of the hottest public finance topics met to form an uneconomical alliance.

Governor Deval Patrick of Massachusetts wants to open three casinos to compete for the business of Massachusetts gamblers who travel to the mega-resort casinos in Connecticut– Mohegan Sun and Foxwoods-and with the revenue he proposes to lower property taxes.

Governor Patrick’s plan, as detailed in BNA’s Daily Tax Report (subscription needed), calls for:

The competitive licensing of three casinos to be built in western, southeastern and Boston metropolitan areas of the state. The establishment of the three destination casino resorts is expected to generate $400 to $450 million annually in new tax revenues, according to the governor’s office. Under the governor’s plan, half of the new destination resort casino state revenue would be dedicated each year to broad-based, direct property relief to individual homeowners.

Although many states continue to look at gambling as a revenue source, it is a poor choice for public financing for a variety of reasons, as Alicia Hansen points out in a recent Tax Foundation Background Paper. Casinos are often looked at as an economic development tool as well, but are far from a sure bet.

Property taxes are being assailed across the country as homeowners are seeing their bills rise even after the real estate boom has come to an end. Politicians eager to please mostly senior citizens who complain loudest about property taxes are coming up with all kinds of proposals to lower property taxes. Indiana and Georgia, for example, are currently discussing abolishing property taxes altogether and Florida is trying to substantially lower them. See here for more information on property taxes.

What politicians routinely forget, or fail to mention, is that any cut in property taxes must be met with a cut in spending, or the money will have to come from some other revenue source. Often state governments are forced to pick up the bill for education because local governments can no longer afford it with their main funding source reduced. Localities end up ceding local control to the state. Depending on your view this could be good or bad, but most public finance experts agree that local control is good for a variety of factors.

Governor Patrick’s proposal is additionally flawed because it would put the tax burden on out-of-state residents. Residents who receive the benefit of government spending should be responsible for funding it. Pushing the burden to non-taxpayers will only work to grow the size of government since its true cost is hidden from the taxpayers.

Government programs with broad social benefits should be paid for with broad-based taxes. The property tax is a good tax as explained above, and is a better funding option than casinos. Governor Patrick is the latest in a long line of politicians looking to ease the burden of property taxes, but his proposal is by far the riskiest.


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