One of the hidden features of the national sales tax, as proposed, is the reintroduction of that old gaming industry bugaboo, the federal casino tax. This notion is floated about once an administration and is now snugly embedded in the fabric of the suggested Fair Tax Act.
If you dig all the way down to Chapter 7, Section 702, you'll find "a 23-percent tax" (i.e., the same 30 percent rate imposed in the rest of the bill, reduced by means of arithmetical voodoo to "23" percent). It's to be extracted from the gross gambling revenues of all "sponsors" of "gaming activities." This means that, say, MGM Mirage would pay $155.4 million (minus state and local taxes) over a three-month period—which could push the company anywhere from $50 million to $100 million into the red, even in a good quarter.
News of the stealthy tax proposal fell on casino-industry ears with surprise, even shock. "Phew!," exclaimed Las Vegas Advisor Publisher Anthony Curtis when he heard the news. "If they passed it on, it would hurt them in terms of a trickle-down, because it's too big a chunk, and it would be felt by the player."
Given the improbability of casinos suddenly imposing a 30 percent surcharge on chips and slot tokens, the costs would have to be redistributed. Under the proposed law, Joe Packerbacker from Milwaukee would already be looking at paying 30 cents tax on every dollar for his airfare to Vegas, his hotel room at Bellagio, his dinner at Postrio and his O ticket. Factor in substantial price increases to offset the gaming tax and perhaps Joe decides that even if what happens in Vegas stays in Vegas, his money won't. "The higher price of the entire experience is going to offset the enjoyment that they presently extract," reports William Eadington, who heads the Institute for the Study of Gambling & Commercial Gaming at UNR.
"We could see a situation in which—if domestic prices went way up—people would travel elsewhere," says UNLV economist Keith Schwer. "The sticker shock will be in the short run," he adds. "After a while, you get adjusted to what the prices are and what your income is, and you act accordingly. But there's no way to get around the impact of a 25 percent to 30 percent increase in price to pick up the tax."
"It certainly is going to have a major effect on the psyche of the consumer," says Eadington. While casinos might try to offset the tax bite on them by jacking up prices on hotel rooms and other amenities, Eadington thinks they'd go a different route. "It would discourage or make it much more difficult to have substantial non-gaming-based capital investment. You're going end to end up with fairly Spartan gaming that doesn't have a lot of attractiveness." Amenities? Forget it! Comps? Get outta my face. White tigers? Adios! Dolphins? Anyone for seafood?
The bill's Bible Belt champions, who include President Bush, may have exposed their rusticity in the drafting of that "gaming activities" tax. According to Nelson Rose, on the faculty of the Whittier Law School, it "works well with a lottery. They just don't know how casinos work."
What's more, if tribal casinos in neighboring states are ruled exempt for a federal sales tax (and they are sovereign entities, after all), the competitive balance tilts sharply away from Las Vegas, toward Phoenix, San Diego and points beyond. If gambling in Las Vegas takes a big hit, says Thompson, "we're worse than Barstow. We're Bakersfield without the oil. We're nothing—a federal bombing range."
And never mind the risk that a 30 percent tax on "gaming activities" could resurrect precisely the kind of illegal gambling market that federal authorities have been at pains to eradicate since the Jazz Age. "It will be an administrative nightmare and it will invite illegal action, worse than marijuana, worse than drugs, worse than Prohibition," says Thompson.
There's one other way the casinos could try to recapture the money: "I don't know how they would pass it on unless they passed it on by tightening schedules on machines and making games worse, rules-wise," says Curtis. "The players would revolt, probably by lessening play."
All agree that this would be the kiss of death. "We've always believed you can't tax gaming at the customer level. You can't change odds," says Lesley Pittman, director of corporate and government relations at Station Casinos. "You can't start charging people $10.25 for a $10 roll of quarters."
"If you remove the probability that the player is going to walk out a winner," adds Eadington, "you're going to basically stifle demand and actually create opportunity for illegal markets. There's a lot of historic precedent for that."
Like Las Vegas, "any town selling services as its main product would be hurt especially hard," concludes Thompson, "and any town trying to be a shopping center would really be hurt." (Bad news for Primm and for the new retail center in downtown Las Vegas that Oscar Goodman is so proud of.)
"This sounds horrible," Curtis mutters, summarizing the general reaction. "This is brutal, man."