The Nelson A. Rockefeller Institute of Government recently released a report on state revenue generated from gambling, which everyone should read. The use of gambling as a source of state revenue has proliferated over the past three decades. Only Hawaii and Utah don’t use any form of gambling to pay for public services.
The proliferation of gambling is shameful. Before I explain why, you should know that I don’t care whether you gamble — what you do with your money is your business. I don’t care if you smoke, drink, get high, or bet the ponies. But despite my libertarian views on the subject, I don’t think gambling is a sound way to pay for government services.
Policy leaders in the states obviously disagree. The Rockefeller report notes that gambling accounts for only 2.5 percent of total own-source revenue. But that amounts to $27.7 billion, which is about half of what states collect from corporate income taxes and more than what they collect from cigarette, severance, or estate taxes. In 2015, 44 states had lotteries, 19 had commercial casinos, 14 had casinos, and seven had authorized casinos on Native American land. Why?
Gambling has spread for a number of reasons. First, we have lived in a decidedly antitax political climate for a long time. It’s simply hard to raise tax revenue at any level of government. In a vacuum, I don’t find that disturbing. But people still want public services, and those services must be paid for. Gambling is attractive because, well, it’s not taxes. Politicians have convinced themselves that gambling is free money, and nothing aids the political process like the perception of free money. Even those thousands of legislators who have promised never to raise taxes, even if their God appeared and said it was OK, approve of gambling.
Those who favor government spending, public service unions, and contractors all welcome gambling revenue. Who can argue with the plea that we need more money for schools and we won’t have to raise taxes to get it? Those who sell gambling — very powerful business interests — do an excellent job of making their case. Indeed, the gambling lobby in the states has few rivals in terms of influence.
In fact, it has persuaded many in the media to use the term “gaming” to describe the industry. Checkers is a game. Buying a Powerball ticket is gambling.
Then there’s a diffusion effect. New Jersey adopts gambling, followed by Delaware, followed by Pennsylvania. Politicians in Maryland repeatedly pointed out that their citizens were taking buses to West Virginia and Delaware to gamble.
They would prefer that the blue-haired ladies spend their dead husbands’ pensions in Maryland. Unfortunately, there’s something to that argument.
Yet, despite its political allure, reliance on gambling is bad government and fiscal policy. The first problem is that gambling is regressive — poor people gamble more than rich people. Sure, there are rich folks playing baccarat in Monaco à la James Bond, but rich folks don’t gamble with the fervor or desperation of everyone else.
They aren’t waiting for their number to come in. I don’t care if you live in the city, suburbs, or country — go to a convenience store on a Friday night and see who’s buying lottery tickets. They aren’t hedge fund managers.
Second, gambling is addictive. Sure, millions of people can casually play blackjack or buy a Mega Millions ticket and not get hooked — indeed, most people can — but conservatively estimating, there are 3 million pathological gamblers in the United States. These people will commit serious crimes to continue gambling. There are over 10 million chronic gamblers — people who just can’t stop, risking their jobs and families for the addiction.
Third, there is a moral dilemma. I don’t usually judge tax policy on moral or religious grounds, but lots of folks do. The Deep South, the proverbial Bible Belt, was the last section of the country to embrace gambling. Utah still resists, largely on moral and cultural grounds. African-American churches opposed (heroically, in my opinion) the expansion of gambling in Maryland. But forget religion for a moment. There is something untoward about public encouragement of gambling.
The message is that you don’t have to work hard to succeed; all you have to be is a little lucky.
Finally, from a government perspective, gambling is a scam. The government becomes the house, and the house always wins. People joke that lotteries are a tax on people who can’t do math. But it really is not a joke. People who gamble will lose their money, and the government, society, you are taking it.
I know the thrill of gambling. I’ve had more money riding on an NFL game than I had in my bank account. I’ve doubled down on a nine, hit an ace, and won 200 bucks at a casino. I used to skip school and go to the dog track. But aren’t public services important enough to pay for with real broad-based taxes on income, sales, and property? Do we really want to fund schools and healthcare with a regressive, addictive, morally questionable source of revenue?