Tom Coates Open Letter that The Register refuses to Print.

There is discussion currently taking place over whether Iowa should increase the rate of taxation on Iowa’s non-tribal casinos. I believe it may be helpful
to view all legalized commercial gambling as a tax on the affected populace. If casinos are contrasted with Iowa’s Lottery there are some significant differences. One difference is the speed of play is delayed which leads to a much lower addiction rate. The primary cash cow for all casinos is the video slot machine which employs a fast action play that is highly addictive.

The other difference which enters into this debate is that after payouts and overhead are covered, the remaining money goes directly to the state. These differences mean that the average Iowa citizen realizes some benefit at the expense of the lottery players who are the taxpayers in this case.

The issue of the addictive nature of the casinos is of paramount importance to this topic. In his 2006 book,” Gambling in America”, Professor Earl Grinol’s study revealed that just over half of a casino’s revenues that employ the convenience model, comes from problem and pathological gamblers.

The convenience model is contrasted with the tourist model employed by Las Vegas casinos where the majority of dollars are lost by people outside their fifty-mile radius. This effect of the convenience model has been called the cannibalization of the native population. It is this cannibalization of Iowans that involves many costs to all of us whether we ever enter a casino. The most recent study was conducted in New Hampshire by the state’s Gambling Commission showing a new casino would cost the state $68 million in taxes to cover the social costs. This figure was 24% more than the proposed casino would pay in taxes.

Previous studies by Professor John Kindt also included displaced business revenue from other enterprises in the 50 mile radius. Many of the businesses are negatively impacted by a neighboring casino. Professor Kindt estimates that for every tax and charitable dollar in benefits, the state loses three dollars.

Our own State of Iowa is the only state to ever commission a timeline prevalence study to determine the effects of addiction rates before and after the introduction of casinos. In 1989 the group led by Rachel Volberg stated 1.7% of Iowans were problem or pathological gamblers. By 1995 the number nearly tripled to 5.4%.

So now, having established some of the costs to addicted gambling, let us look at what is best and equitable in regards to tax rates. The Iowa legislators initially instituted a 36% rate of taxation for land based casinos and 20% for riverboats. The boats having greater costs and cruising requirements which have been now eliminated was given the lower rate. A lawsuit by casinos who initially agreed with the rate led to the current 22% riverboat and 24% land based rates.

In a review of other states’ taxing on race tracks and casinos reveals that Iowa has the lowest rate of the eleven states analyzed. We allow the operators to retain 76% of net revenue while New York and Rhode Island allow only 30 and 28% respectively. Canada as a country sees fit to tax their casinos 90% of net revenue and yet they continue to operate.

One more point should be made in this discussion. The point of who owns the seventeen Iowa casinos reveals the majority aren’t Iowa companies. Nine of the seventeen are owned by out of state corporations. We therefore subsidize our casinos with a relatively low tax rate only to see most of the extra profits being sucked out to benefit out-of-state firms.

In closing, casinos aren’t like any other business. In all of recorded human history, gambling has been labeled as a vice along with illicit drugs and prostitution. Simply legalizing it doesn’t change the nature of the beast. At the very least we should increase the tax rates to alleviate the excessive burden casinos now cause to the Iowa taxpayers.

Tom Coates
Board member of Stop Predatory Gambling

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