In March 2005, the Lousiana governor proposed increasing the tax rate on casinos' net gambling proceeds by as much as 50%. This action will likely be contrary to the interests of the casino industry in the state and even to the Lousiana taxpayer. There are several factors that account for the likely negative outcomes.
First, Lousiana borders Mississippi, another state in which casinos are legal. Thus raising the tax rate will encourage gamblers to go across the border to gamble in Mississippi as Lousiana casinos reduce their payout rates in order to maintain profit margins. The degree to which this occurs will determine whether the governor's action is successful in raising tax collections. There is certainly the potential for this change to actually reduce overall tax collections instead of raising them.
Second, higher tax collections, to the extent they are paid by residents of the state, will tend to impoverish Lousiana citizens, especially the frequent gambler. This will also mean that Lousiana citizens will have less funds to spend at other non-casino entertainment outlets inflicting economic pain on other non-casino firms in the state.
Third, the governor's action could jeopardize the entire industry in the state. Casino bankruptcy is not new to Lousiana. During the 1990s, several casinos in the state declared bankruptcy making Mississippi a much more viable location for casinos. Lousiana's problems were a prime factor making the Mississippi casino industry profitable for both the casino owners and the Mississippi government in the 1990s.
Fourth, prohibitively high casino tax rates encourage "off the books" activity and can result in an increase in corruption and a host of other illegal activities. For example, casinos will be encouraged to push gamblers into games where tracking patron losses is more difficult for state auditors.
Finally even in if the governor's actions are successful in raising revenues, the long-run health of the state could be damaged. A state that depends on an unstable revenue source such as casino gambling will find itself in financial difficulty during an economic downturn. Funding for the education system of the state, for example, should not be closely linked to the vagaries of the casino industry.
Ernie Goss, Ph.D.