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House Bill 897: More Gambling for the Children
Would you teach your children that gambling is the best way to raise money in a
pinch? That they should spend their allowance on video games and slot
machines rather than on books? Probably not, but some Texas state legislators
are about to. They think Texas needs video lottery terminals (VLTs) to raise
more money, supposedly for education. They say want to help the kids, but all
they’re really doing is making a bad tax worse.
Many people don’t even realize the lottery is a tax because a tax is mandatory
and playing the lottery is voluntary. But they’re confusing the purchase with the
payment. It’s like buying alcohol or cigarettes: the state levies excise taxes on
alcohol and tobacco and, although the purchase of these products is voluntary,
the taxes are mandatory. With lotteries, the state goes even further by
prohibiting the private sale of the product, creating a monopoly for itself, and
taxing the product.
State governments kept almost $14 billion of the nearly $45 billion spent on
lotteries in Fiscal Year 2003. They did not consider this money to be tax
revenue, but they should have. The money left over after lottery agencies pay
winners and operating costs (the “profit”) is actually an implicit tax, and a high
one. In the 39 states that operated lotteries in 2003, the average tax rate was 45
percent.
The lottery is a bad tax for several reasons. First, high taxes on specific products
violate the principal tenet of sound tax policy, what economists call “neutrality.”
By singling out certain goods or industries for higher rates, lawmakers distort
consumer spending and ultimately damage a state’s economy.
Second, many studies have shown lotteries to be regressive, meaning lowincome people spend more on lotteries as a percentage of their income. Should
the government be in the business of selling, advertising and taxing a product on
which the poor spend more and bear a disproportionately large share of the tax
burden?
Finally, good tax policy requires taxes that are easily understood. Taxpayers
should know if a product is taxed and how much. Lottery retailers do not give
customers receipts itemizing the tax, and states routinely mislead taxpayers
about what a terrible deal the players are getting.
The above concerns apply to traditional lotteries, but VLTs are even worse.
VLTs are games of chance--or a combination of chance and skill--such as poker,
blackjack or slots, played on computer screens. The bill under consideration
would allow VLTs at racetracks, creating what other states call “racinos.” Players
can bet repeatedly in a short period of time and experience the instant thrill of
casino-style games. VLTs usually resemble casino games to such an extent that
players may not realize the games are overseen by the State Lottery
Commission. When we think of “playing the lottery,” we think of purchasing a
ticket and waiting days to find out whether we won, not playing slots or video
poker at the track. The similarity of VLTs to casino games makes the lottery tax
even harder for consumers to understand.
Who would be the winners and losers if VLTs flood the state? Taxpayers would
be the big losers because they’d be forking over millions more to the state.
Racetracks and companies who manufacture gaming devices both stand to
profit, and so do politicians because they’d supposedly be “helping the children”
without raising the most unpopular taxes – sales, property and business taxes.
But what about the children? Won’t they benefit? Probably not. In other states,
legislators have routinely spent big after installing or expanding a lottery, but not
on education. Knowing that lottery funds will make up the difference, they
actually end up splurging on other things. Also, the children would learn a
dangerous lesson about raising and spending money. In 2002 the average
American spent more money on lotteries than on reading materials. Children
may not understand the nuances of sound tax policy, but they can understand
what this says about adults’ priorities, and they can understand the hypocrisy of
funding education with casino-style gambling.
Only six states currently have VLTS but others have considered them. People
get hooked on them quickly, often pumping four times as much money into them
as they spend on regular lottery tickets. This delights tax-raisers, who can wallow
in the money but deny they raised taxes.
It’s easy for politicians to say, “Let’s do this for the children,” but what would we
really be teaching the children if this bill passed?