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As Long as We Remember...

January 17, 2012

The Argument for Slots

Farrell Keough

In our current environment, we are seeing new taxes under all sorts of rubrics. For instance, we have paid dearly over the years for our roads and highway systems – yet, today, we are facing newly designated tax schemes like Toll Roads.


The reasoning is simple, monies were thrown away on pet projects and flawed business models like mass transportation.


Enter a different scenario – slots.


State authorized gaming is one of the few taxing schemes which is completely honest as a mechanism to garner revenue. There is no hidden fee or unforeseen extra payment. Plus, no individual is forced to pay this tax – it is purely voluntary.


Slots can also be quite lucrative. In a report from the Farm Foundation®, it was noted that “[a]t Prairie Meadows in Iowa, for example, over 90% of gaming revenues in 1997 – $127 million – came from slot machines.” This does not translate into a belief that all gaming will be successful. For instance, in Maryland, the locations were foolishly placed into our Constitution rather than allowing the market and local communities to determine their own destinies. (The Rocky Gap State Park locality still has no qualified bidder interested in pursuing this location.)


Putting aside the issue of government attempting to handle market forces, (something which has never yielded a positive result) the availability of slots as a consumer choice and tax generating instrument has many strong positives.


For instance, it is often noted that crime will increase with the introduction of gaming facilities. As noted by the Farm Foundation®, “organized crime and systematic corruption with respect to casinos has steadily diminished over the past three decades. With few exceptions, modern permitted casino gaming in most countries has significantly limited any role of organized crime. (There are some exceptions, such as Macao.) This is mainly a result of effective and diligent regulatory regimes, along with new technologies that have made monitoring money within casinos easier to achieve.”


A second issue which often worries and confuses the public is the economic and social impacts associated with gaming. Again as outlined by Farm Foundation®, the “economic impacts – which tend to be positive – are quantifiable, tangible and measurable; whereas social impacts – which tend to be negative – are qualitative, elusive, and very difficult to measure.” It should be emphasized that simply because something is difficult to measure, does not mean it is not important. The real versus perceived social impacts require serious attention and scrutiny.


One of the more recent and relevant reviews of these impacts comes from Howard J. Shaffer, Ph.D., C.A.S. an associate professor of Psychiatry at Harvard Medical School. Rather than rely on anecdotal evidence or poorly defined methods from the past which have yielded unreliable results, this new methodology uses a very different approach.


Before spending a small amount of time explaining this approach, it must be pointed out that those who find themselves in serious trouble from gambling are a tiny percentage of the public. Most of the people who enjoy the freedom and challenge of gaming walk away without harming themselves, their families, or anyone else – they simply enjoy entertainment.


So, what differentiates this approach? In very simplistic terms, the potential addiction to gambling is viewed as the reaction by some people to a new chemical. Some people will have an adverse effect, some will have no reaction, and others will adapt. It is this adaptation which is stressed in this new approach. What makes this approach useful is that we have existing methods to look at things epidemiologically [the study of disease origins and spread], and this allows for a “quantifiable, tangible and measurable” inquiry.


Take allergies to pets as an example. Most people have no allergy what-so-ever. A subset of people has such strong allergies they cannot be near someone who has cat fur on their sweater. Others are able to adapt after continued exposure and either end up having no symptoms or their reactions are so minimal they do not inhibit enjoying these animals. Using this kind of approach should produce much more reliable results as to how to mitigate any negative results from this industry. The underlying concept is that when a new entertainment industry is introduced, some in the public may initially overspend to enjoy this new activity; but, over time, this will level off and the preponderance of the public will enjoy this leisure interest responsibly.


Finally, who is the target market for those interested in incorporating slots into the gaming industry? The Federal Reserve Bank of St. Louis found that the general population is between 51 and 60 years old and women outnumber men 55% to 45%. “Forty-six percent of gamblers graduated or attended college, compared with 43 percent of the general population.” While any group may participate in illegal activities, the likelihood is low that illicit drugs or prostitution will be rampant – especially considering that women outnumber men.


Further, “[t]he evidence on the financial burden of gambling is mixed. One early study using a national survey found high-income gamblers spend a greater percentage of their income on gambling than do lower-income gamblers – thus, high-income gamblers bear a greater financial burden than lower-income gamblers.” “While the evidence is relatively clear that the average casino patron is not lower income, the financial burden of casino gambling undoubtedly differs by location and should be analyzed on a case-by-case basis.”


This brings us back to our original point about generating tax income for the state. This form of activity is a choice of entertainment, not a forced tax on necessities like food or fuel. The “real” risk of criminal activity is nominal. And, those adversely affected are a small percentage of the public with requirements by the state to pay an additional tax to both help and prevent these events.


Gaming is a long-time established activity by the state. Adding slots should not pose a serious dilemma that cannot be mitigated or overcome.


Farrell Keough is chairman of Engaged Citizen


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