Sen. Neal in the Lion's Den

A Speech Regarding the Gross Gaming Tax
Delivered by Sen. Joe Neal to the Nevada Taxpayer's Association
September 16, 1999

As I come before you today, I labor under some serious disadvantages. First, I know that this is a peculiar forum in which to propose a tax increase. The Nevada Taxpayers's Association has established a sterling reputation as a vigilant watchdog guarding the public purse. Your past experience will naturally dispose you to treat any proposal to expand public revenues with great skepticism. My second disadvantage is that to get my message across today, I must violate one of Nevada's most serious taboos. I must speak ill of gaming in general and our own gaming industry in particular. Finally, and most seriously, I must confess that after 30 years in public office, I still have not mastered the etiquette of political discourse; I have not learned to read an audience and tell it just what it wants to hear. This is a grave fault in a politician and I must beg your indulgence.

Having said this, I ask you to listen to what I have to say today with an open mind, to suspend judgment until you have had an opportunity to listen to the arguments and weigh the evidence.

Gaming is Nevada's largest industry. It employs almost one-third of our workers and pays a substantial amount of our public revenues. The largest and most important tax that is peculiar to the gaming industry is the tax on gross gaming revenues. This fee is collected monthly at the following rates: 3 percent of gross revenues below $50,000; 4 percent of gross revenues which exceed $50,000 per month but are less than $134,000; and 6-1/4 percent of gross revenues in excess of $134,000 per month. The legislature last voted to change these rates in 1987. The top rate was increased from 5-3/4 percent to 6 percent in 1987 and then to 6-1/4 percent in 1989. The gross gaming fee produces revenues of about one-half billion per year. These revenues are deposited in the state general fund.

I am proposing to create a new tier in the state gross gaming fee schedule. This tier would apply only to revenues of over $1 million per month. They would be taxed at the rate of 11-1/4 percent. This change would affect 107 of the state's largest casinos [Exhibit 1].

Today, I will argue that the gross gaming tax is due for an increase. I will show that its contribution to the total state budget has diminished greatly over the last decade. I will also show that during that time other taxes, those paid by citizens and businesses other than gaming, have increased, resulting in a shift of the tax burden from gaming to other sectors of the economy. I will also argue that this shift is inappropriate.

Over the past 12 years since the legislature last voted to increase this tax, Nevada has changed. Our population has nearly doubled [Exhibit 2], creating an unprecedented need for new streets, highways, schools and other infrastructure. Schools are, of course, our largest item of public expense. School enrollment has increased by 85 percent [Exhibit 3]. The results of growth can be seen all around us - congested roads, crowded schools, shortages of water, and environmental degradation. What is the engine that is driving this growth? In southern Nevada, it is the expansion of the gaming industry.

For the most part, the costs of growth are not being paid for by gaming. Instead, they are being paid for by taxes on other businesses and on private citizens. As the next chart shows, state sales and use tax revenues have more than tripled since 1987 [Exhibit 4]. The increase in other components of the sales tax has been even more dramatic. In 1991, the legislature raised the local school support tax from 1-3/4 percent to 2-1/4 percent. The same year, in Clark County, another 1/4 percent was added to pay for roads. Then, last session, the long suffering residents of southern Nevada were asked to pay another 1/4 percent to expand the water system.

Owners of motor vehicles have fared even worse. In 1991, the vehicle privilege tax in Clark County increased from 4 percent to 5 percent, with the additional revenue dedicated to paying the costs of expanding our road network. This 20 percent increase may not seem that large unless you consider the fact that, during the same time period, the price of a new car doubled, an increase far in excess of the rate of inflation. This means that the actual amount paid to register a new car is somewhere in the neighborhood of 120 percent higher than it was in 1987.

Drivers also have had to pay higher fuel taxes. The state and local gasoline tax in Clark County has increased from 21 cents per gallon in 1987 to over 33 cents today - an increase of over two-thirds. This tax raise means that we now have the third highest gasoline taxes in the nation. Again, this increase was imposed to pay for growth.

In 1989, we raised the insurance premium tax from 3 to 3-1/2 percent. This tax increases the cost of every policy of life or health insurance. It increases the costs of annuities. It makes it more difficult for every Nevadan to prepare prudently for the future.

What about property taxes? Well, as a result of our population growth, the median price of a home in the Las Vegas valley has increased from about $85,000 in 1987 to over $130,000 today. Nor has the tax rate fallen. Instead, it has increased. In Las Vegas in 1987 the rate was $2.57 per $100 assessed value. this year it is $3.11 per $100 assessed value.

I could mention other tax increases - the business tax, for example - but I think you see the point. The expansion of gaming has caused a population explosion in southern Nevada, but private citizens and small businesses have borne the brunt of the cost.

How serious has this cost shift been? Let's look at the state budget. The next chart [Exhibit 5] shows that in 1987, the gross gaming tax accounted for 17 percent of the total state budget. In 1999, it accounts for only 10 percent. The next two charts show what this means. The first [Exhibit 6] shows the gross gaming tax in relation to the total state budget. The budget increased 300 percent while gross gaming tax revenues increased only 142 percent. The next chart shows the same comparison with the total state budget less federal funds [Exhibit 7]. I think the charts speak for themselves.

There are those who will argue that the proposed increase in the gross gaming fee will place Nevada's casinos at a competitive disadvantage compared to casinos in other states. That is not the case. As the next chart shows [Exhibit 8], Nevada's gross gaming tax is the lowest in the nation. Even with the increase that I am proposing, our tax rate will remain well below that of most other states. The details of the tax structure of each of the other jurisdictions is shown in the next table [Exhibit 9].

Another objection that may be raised is that, since gaming is so important to Nevada's economy, it should be spared any tax increases. Those who make this argument see me as the executioner, wielding the ax that will kill the goose that lays the golden eggs.

It is, of course, true that gaming is Nevada's largest industry. It directly employs almost one-third of the labor force. But what is the nature of that contribution? Wages in the gaming industry are, on average, among the lowest in the state. Wages in transportation and public utilities are 35 percent higher on average; those employed in manufacturing make 38 percent more; in banking and real estate, 42 percent more; in construction, 48 percent more; and in mining, a whopping 108 percent more. Let's speak the honest truth: gaming is a backward, low-wage, low-skill industry. It is an industry of yesterday, not of tomorrow.

Those employed in the gaming industry work hard, but many have little to show for it. Because they earn so little, they have no reserves and no security. They are vulnerable to every misfortune, and when misfortune strikes, they are all too often thrown back upon the resources of society. They must be fed, clothed, housed, and healed at the public expense. Shall we not consider this when we discuss how much gaming should contribute?

There are those who believe that gaming is no different from any other industry. They see no reason why gaming should pay any tax that is not imposed on all other businesses. To meet this objection we must step back a bit and take a more comprehensive view of the situation.

Open, legal gaming on the scale we see it in Nevada is an anomaly in human history. In almost every society, past and present, gaming is prohibited or severely restricted. Why? Because experience has shown that it tends to weaken the foundations of a stable and productive society. Gaming places a premium on pure, blind luck - it scoffs at talent; it is a standing insult to sobriety, thrift, and hard work; it leaves in its wake ruined families and broken lives; and it is a constant incitement to theft and crime - as our exploding prison population testifies.

Gaming took root early in Nevada, perhaps because this was a mining state, a place where fortunes were made or lost in a day. By 1931, it was clear that it was futile to attempt to suppress it. The legislature wisely recognized that gaming was here to stay. It then struck a Faustian bargain: the industry would be tolerated, it could operate openly and legally, but there was a tacit understanding that, in return, gaming would make substantial contributions to the public purse. The wisdom of this bargain has been abundantly proven. The gaming industry has grown and the state has grown with it. The evils of gaming are still evident, but we tolerate them.

But now, 70 years later, the gaming industry seems to have forgotten its side of the agreement. It is willing to contribute less and less while at the same time imposing ever rising costs on society. I think the time has come to rectify this situation.

Let me just conclude with a lesson from history. One hundred years ago, Nevada was dominated by a single industry. That industry was mining. It employed tens of thousands of men, and paid substantial taxes. It exercised unprecedented political power and bent statesmen to its will. As time went on, the fabulous Comstock Lode was exhausted. Ore bodies in Tonopah, Goldfield and many other communities gradually petered out. The state sank into a profound economic depression that lasted several decades. A large part of our population fled; once flourishing towns and cities crumbled. Grass and sagebrush grew in their streets.

Could this happen again? Yes! If we continue to shift the burden of taxation to our burgeoning manufacturers and small businesses, if we fail to educate our children to do tomorrow's work, if we allow our public institutions to shrivel and die for lack of support, it not only could happen, but certainly will.

That is why I am here today. I call upon you, the members of the Nevada Taxpayer's Association, the representatives of our homeowners, workers, and businesses, to redress this imbalance, to give your support and place the prestige of your organization behind my initiative.

Thank you.

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