Quit Gambling With Our Future

All across America states are engaged in massive corporate welfare. It is disguised as tax incentives for business investments, but it results in a deadly competition that is undermining the fiscal integrity of many states, especially in the South where an unrealistic opposition to taxes in general has already undermined the public weal.

Individual states are caught between a rock and a hard place.  On the one hand, adding jobs from either new or existing business firms is desirable and contributes to improving the economic health of the state.  On the other hand, new or expanding economic activity likely carries with it the need for additional public expenditures---more infrastructure such as roads, water and sewer, more public services such as schools, colleges, police and fire departments and more health services.

Someone has to pay for those services.  If you reduce tax rates, or provide direct subsidies like land, buildings or tax credits, so that local and state revenues normally collected from the company making the new investments are lower, someone, individuals or other companies, must make up the shortfall, or the needed services will not be provided.

Defenders of tax incentives for new investments argue that without them no new investment would occur. Maybe that is true.  But would the investments come if the schools are failing and the roads and bridges are collapsing? 

Often the reasons for a company to relocate within the United States are foreboding. 

Cheap land, lower labor costs, less regulatory oversight, those are frequently the motivating factors. There is little room for enriching the community.  And often once the tax incentives have played out, companies leave.

A recent US Supreme Court decision has introduced a toxic elixir into the issue.

In Murphy v. NCAA the court in a 6-3 decision ruled the Professional and Amateur Sports Protection Act of 1992 unconstitutional. Under that law, with a few exceptions grandfathered, states were prohibited from allowing sports betting.

The law had been sponsored by then-Senator Bill Bradley, a former All-American college-basketball player and a star professional. His objective was clear: “State-sanctioned sports betting puts the imprimatur of the state on this activity. It conveys the message that sports are more about money than personal achievement and sportsmanship. In these days of scandal and disillusionment, it is important that our youngsters not receive this message.”

The decision is a victory for New Jersey and other states who have considered allowing sports gambling as a way to encourage tourism and tax revenue. The NCAA, NFL and NBA had backed the federal prohibition.

In his opinion, Justice Samuel Alito wrote: “The legalization of sports gambling requires an important policy choice, but the choice is not our to make…Congress can regulate sports gambling directly, but if it elects not to do so, each state is free to act on its own.”

The barn door is now open, let the games begin.

North Carolina has already legalized sports wagering, but limits it to tribal casinos and does not allow mobile wagering. It is estimated that the additional betting might generate between $1 million and $1.5 million annually. Not a major bump for a $24 billion state budget.

In South Carolina things are moving slower. The Palmetto Forum for Gaming Studies has popped up, co-chaired by two erstwhile politicians, Jim Rex and Converse Chellis, III. The organization claims it “will engage in conducting research and hosting public policy discussions, forums and debates….Polling and research on various key issues will be conducted and results compiled for disbursement to legislators, state agencies, business organizations and media outlets.”

The PFGS website provides no information as to the sources of its funding.

South Carolina is one of just nine states that does not have a commercial or tribal casino, so it is a natural target for the gaming moguls. The state’s biggest industry, however, is tourism…nearly $23 billion in 2018. The Grand Strand and Charleston are the state’s top tourist destinations. Would the introduction of gambling enhance the ambiance of either?

Both North Carolina and South Carolina have “education” lotteries, which are legalized gambling initiated allegedly for the benefit of schools and universities.  The SC website claims the lottery in the Palmetto State has generated $5.5 billion for education since its inception in 2002.  NC got in the game a bit later, 2006, but with more than twice the population of SC its lottery as taken in more than $6.24 billion. Despite the stated objective, college tuition in both states has increased substantially since 2002.

Neither state reveals how much gross revenue the lotteries accumulate. The fact is the states receive only about 25-30 percent of what players pay in to the lotteries.  A lottery is a notoriously inefficient way to raise dollars for critical public services.

It is also true that lotteries collect most of their money from those at the lower end of the income scale.  Workers in the Carolinas already make only about 84 percent of the wages earned by those in states outside of the South.  Lotteries just add to their already unfair burden.  Additional legalized gambling will pile more on to those least able to afford it.

Legalized gambling also may have a dark future. A report produced by the Rockefeller Institute of Government in April 2016, entitled “State Revenue From Gambling: Short-Term Relief, Long-Term Disappointment,” points to the flat growth in gambling revenues in recent years as every state attempts to get into the act. It notes as well that millennials do not seem interested in frittering away money on games of chance.

Neither surrendering to the ruthless competition for tax incentives nor expanding legalized gambling will help local and state governments meet their obligations to their citizens. The goal should be to develop and maintain a tax system that generates the necessary revenue in a fair and equitable manner.