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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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Sen. Neal in the Lion's Den
