Gambling in American History

Texas has been the home to gamblers since its inception as a political entity. Whether the Texans were on the frontier in gambling saloons, in illegal Galveston or Dallas casinos, or off in Las Vegas (or in recent years Shreveport, Louisiana), they have loved the “action”. The attorney general of the state, Will Wilson, cracked down on illegal casinos in Galveston in 1957, prompting an effort to legalize the gambling. The efforts were aborted after local voters expressed a dislike for the casinos in advisory votes. Periodically there have been weak attempts to gain support for casinos, but these have all been unsuccessful. In the meantime, charitable gambling operations have been established in the state. Also, “gray” machines offering winners coupons for merchandise have existed openly in truck stops across the state, although their legality has been questioned.
In 1992, the state launched a lottery, which quickly became one of the most successful in the United States, trailing only New York in sales for some years. The lottery offered instant games, lotto, and daily numbers games. Horse-track racing experienced ups and downs in attempts at legislation over seven decades, but finally in the 1990s licensing for tracks began. There are now eight tracks, the biggest being the Lone Star Park near Dallas-Fort Worth.
The state has only three Native American reservations. One – the Alabama Coushatta – is near Livingston, seventy miles north of Houston. The tribal members once voted against casinos, as they believe that outside gamblers would disturb their quality of life. They are also strongly religious. Another vote in 1999, however, indicated that they were destined to have a casino. Two other tribes, the Kickapoos in Eagle Pass and the Tiguas in El Paso, have started gambling operations with bingo games, card games, and machines. The state has refused to negotiate compacts with the two tribes, and legal controversies surround the gambling.

When Tennessee received statehood in 1796 as the fifteenth state, it was a land on the frontier filled with individualists. Leaders such as Andrew Jackson were very active gamblers, playing many kinds of card games and also wagering on horse races. The heritage of wide-open community life did not last into the twentieth century. In the modern era, horse-race betting was legalized; however, tracks were not economically viable, and all of them closed before the 1990s. Charitable gambling is not permitted, although it has taken several police crackdowns to stop many of the games. The state has no lottery, nor does it permit any other gambling. In 2000, Tennessee was one of only three states without any active form of legalized gambling.

The first federal excise tax on gambling devices was passed as part of the Revenue Act of 1941. A stamp act of ten dollars was levied on pinball and similar amusement machines and fifty dollars on slot machines – meaning machines that operate by means of insertion of a coin or token and that “by application of the element of chance may deliver … cash premiums, merchandise or tokens”. Ordinary vending machines were excluded from the tax.
The Revenue Act of 1951 raised the stamp act to $250 for slot machines. The amusement machine and slot taxes were repealed in 1978. The state of Nevada took over the tax, however, and has dedicated the receipts to educational programs. The 1951 Revenue Act also imposed a 10% fee on the amount of money wagered on a sports event or on a lottery conducted for private profit. This tax was lowered to 2% in the 1970s and to 0.25% in 1982. (The tax remains at 2 percent if the gambling is illegal.) In addition, the 1951 law created an occupational tax of $50 for each person working for a gambling establishment. Later the tax was raised to $500. Today it remains $500 for illegal gamblers but is only $50 for those engaged in legal wagering. Those involved with lotteries, pari-mutuel gambling, slot machine games, and casino table games (not considered wagering) are exempt from the occupational tax.
In 1994, President Clinton proposed a 4% tax for all gambling profits realized by commercial operations. The proposal died in Congress among a flurry of opposition from casino interests.
The federal gambling taxes have produced only a minuscule amount of revenue for the national budget. The real purpose of the taxes seemed to be to discourage gambling and also to delineate a separate criminal offense for persons not paying the taxes. Illegal gamblers were obligated to pay the tax, and of course, most did not. In 1968, however, the U.S. Supreme Court ruled that the government could not require illegal operations to pay the taxes, as such payment would constitute a forced self-incrimination in violation of the 5th Amendment of the U.S. Constitution.

Many jurisdictions with gambling operations earmark tax revenues for certain functions. In Canada, governments devote some gambling revenues to private charities, and in the United States, a variety of activities are selected to be beneficiaries of revenues. Most of the thirty-nine lotteries (thirty-eight states plus the District of Columbia) earmark some funds to specific functions of government. Most of the funds are designated for educational activities; others send funds to senior citizen programs, parks and recreation programs, or public safety. Casino taxes are often earmarked as well. Special slot machine taxes in Nevada are designated for education, as are parts of the casino taxes in Illinois, Michigan, Mississippi, and Missouri. Colorado and South Dakota use casino taxes for tourism and historical preservation. Indiana uses casino taxes for economic development, Iowa for infrastructure and local governments, Missouri for public safety, and New Jersey for senior citizens and urban redevelopment.
Earmarking is not necessarily the most efficient way to distribute public funds. The process removes a certain amount of flexibility from legislators who may be trying to set priorities for the state on the basis of current needs. By designating a specific function to receive gambling taxes, however, proponents of casinos, lotteries, or other forms of gambling can win critical support from important groups in their campaigns for legalization. Proponents of the lottery in Georgia won such critical support by offering lottery money for college scholarships for all Georgia high school graduates who received B averages.
After a form of gambling operations begins, the objectives of the earmarking process are often difficult to maintain. If the functions supported by earmarking are old activities, legislators are prone to reduce previous funding of the activities from other taxes and merely replace the funding with gambling revenues. The activity receives the same funding as it did before. Also, when earmarking provisions are established, legislators seek to broaden definitions of the activities.  As mentioned, Nevada uses special slot machine taxes to fund education. One year the state wished to build a basketball arena for the Running Rebel basketball team of the University of Nevada, Las Vegas, and the state was short of general fund monies for the project. With some minor redesign, the basketball facility ended up with some meeting rooms, which were sometimes scheduled to hold classes. Hence, the basketball arena became an educational facility.

Special gambling taxes provide large amounts of revenues to many of the jurisdictions with legalized gambling. In the state of Nevada, casino taxes provide the largest share of public revenues from any tax source. In 1997, more than $586 million was generated by the 6.25% gross win tax, plus various fees on licensing, machines, and table games. Additional revenues go to local governments in the form of fees as well as property taxes. That year more than 40% of the state’s internal source funding came from the casino sector of the economy. More revenues flow to the state treasury as a result of the nongambling activities of tourists who are drawn to the state because of its casinos. These taxes take the form of room taxes, entertainment taxes, and general sales taxes. No other state or provincial jurisdiction in North America receives as high a proportion of its revenues through gambling activities.
In a recent year the state of Mississippi receives $262 million, or about 10 percent of its internally generated revenues from casino taxes. No other state receives as much as 4 percent of its revenues from casino taxes. Lotteries yield low portions of state budgets as well. At the low end, New Mexico’s lottery gives the state only 0.4% of its budget; at the high end, Georgia receives 4.1 percent of its state revenues from its lottery (Christiansen 1999).
Although Nevada is the state that is most dependent upon gambling revenues, many other states receive more dollars from gambling sources. Nevada ranks only thirteenth among the states in taxes and other gambling revenues. New York leads the list. Governments of the Empire State, Texas, and Massachusetts each receive over $1 billion a year from lottery operations. Illinois and New Jersey each receive approximately $900 million from a combination of lottery revenues and casino taxes. Ohio, Florida, and California receive between $700 million and $800 million from lotteries. Lottery receipts in Pennsylvania and Georgia exceed Nevada gambling tax revenues, as do the combined lottery revenues and casino taxes of Indiana and Michigan. Quebec and Ontario, the two largest Canadian provinces, also receive more government funds from gambling sources than does the state of Nevada. Both provinces have large lotteries. Quebec has three government-owned casinos, which provide all their profits to the government. In Ontario, the government is the casino owner, but there are private operators. The operators pay a 20% gross win tax, then they take 5% as their share of the profits. After other casino expenses are paid, the province is given the remainder of the revenues.

The questions of who pays the gambling tax and its impacts upon society are important policy questions. The answer is that the gambler pays the taxes, as the gambler is the source of the tax money – no matter how many hands it is processed through before it reaches a state treasury. When gambling opponents proclaim that we should “tax the casinos” more or that the “casinos must pay their fair share”, false notions are being generated. All taxes come from people, and that is especially the case with gambling taxes. The proper question to ask is, “which people?” For sure they are volunteer gamblers. But are they local residents, or are they tourist visitors who would not otherwise be spending money in the community? More important, are they affluent people who can afford the recreational activity of gambling, or are they poor people who must divert funds from family needs in order to gamble?
Studies of lotteries have suggested that the burden of taxation from sales of tickets falls most heavily upon poorer people. Their purchases of tickets constitute a higher proportion of their income and resources than do purchases of tickets made by more affluent persons. Moreover, many have suggested with empirical studies that governments purposely put lottery ticket sales outlets in poorer residential areas in higher proportion than they do in other neighborhoods. They also direct their advertisement messages toward poorer people. These people are considered their best potential customers in terms of volumes of sales. The National Gambling Impact Study Commission was very critical of lottery advertising. Lottery taxes are considered to be regressive (National Gambling Impact Study Commission 1999, 3–17).
Pari-mutuel racing locations are such that betting on races is not as convenient as buying lottery tickets. Hence, fewer numbers of poor people are attracted to this kind of gambling. Also, the process of selecting probable winners of races is much more difficult than buying a lottery ticket. Nonetheless, many of the regular race-track bettors are poorer people—perhaps because they are regular bettors.
Casino taxes may be regressive or progressive. Casino betting may be convenient, or it may require such major investments of time, energy, and travel money that poorer persons avoid the gambling. For instance, in Las Vegas, taxes on casino gambling can be considered both regressive and progressive. Slot machines are permitted in bars, convenience stores, and grocery stores within walking distance of almost all the residents of Las Vegas. Tourists do not play at these machines. Nor do affluent persons. Many of the bars and 7–11-type stores are established for the primary purpose of offering machine gambling. The grocery stores of Las Vegas stay open twenty-four hours a day in order to service gamblers. A high proportion of the grocery store and 7–11 players are probably problem gamblers. Taxation of the gambling exploits the conditions of these players and must be considered regressive (Thompson 1998, 459–461).
On the other hand, the Las Vegas Strip casinos attract tourists. Over half of the casino visitors arrive in Las Vegas by air. They stay at the hotels for an average of four days, but they gamble only four hours each day. Their gambling dollars are from their recreational budgets. They can afford to gamble; hence, taxes on their activity tend to be progressive taxes (Las Vegas Convention and Visitors Authority 1999).

Lotteries

A typical lottery ticket may sell for $1. Of this amount, half may be designated for prizes to be returned to players. Fifteen percent of the ticket price is often directed toward expenses (advertising, ticket distribution and sales commissions, printing tickets, managing funds). About 35% is reserved for government treasuries, either for a specific use or for general uses. If we consider that a ticket purchase results in a value of $0.50 going to the player, we can assume that the player has purchased a product worth $0.50. At the point of purchase, however, the price was $1, or $0.50 more. If the lottery purchase was considered to be the purchase of any other product, we could say that it carried a 100% sales tax. If we see the extra $0.50 as a profit margin, we could say that the seller was paying a tax of 70% on the gross profit – that is, $0.35 on $0.50. Or we might simply say that the government tax is 35% of the gross sales, and all other costs are costs of doing business. However we conceive the rate of taxation, we can see that lottery operations carry the highest taxation rates of any gambling products. Also it can be claimed that the use of a lottery to raise money for government activities is very expensive. It costs $0.15 in expenses to raise $0.35 for government use.

Pari-mutuel Racing

In pari-mutuel wagering, players typically make all their bets, and these are placed into a common pool (e.g., $1,000). A set amount of the pool is then given back to the winning players (about $800). As a sales tax, we can say that the tax on the player is 25% ($20 on $80). Expenses and shares given to the track and animal owners constitute most of the $200, however. The government would typically keep only $60 or $70. It might then be said that the government tax is 30 percent or 35% of the profits from the wagering, or 6% or 7% of the gross sale price of the betting tickets. As the government incurs only a very small part of the cost of race-betting operations (having a state racing commission), the cost of raising the $60 or $70 is very small, perhaps less than 10% of the amount raised.

Casinos

Casinos typically pay many kinds of fees as well as taxes on their gambling winnings. Fees are charged for licensing activities and also for having individual numbers of machines or gambling tables. Taxes on the winnings are assessed on the gross gambling win – that is, the amount of money the casino retains after all prizes are given to the players. The rates of the casino win taxes vary considerably among the commercial casino jurisdictions of the United States.  Nevada has the lowest rate – 6.25% of the win – followed by a rate of 8 percent in New Jersey, Mississippi, and South Dakota. In Michigan, the state tax on wins is 18%, and Louisiana has an 18.5% win tax. Several states have taxes of 20% (Iowa, Indiana, and Missouri). The highest rate is found in Illinois, where a graduated tax climbs to as high as 35% of the casino win. These taxes are generally more efficient than those for lotteries and pari-mutuel racing. The government collection costs are consumed by state regulatory commissions and are normally less than 5 percent of the revenues collected.

A primary rationale for the legalization of almost any form of gambling has been the anticipation of government revenues derived from special taxation on the gambling activities. Proponents of gambling often argue that “since people gamble anyway”, the activity should be legalized so that it can be taxed. Persons opposed to gambling might dispute the premise that there is “gambling anyway”, and they claim that even where there is legalization, the amount of tax revenue gained is in most cases only a small part of a government’s budget. It is also argued that the legalization efforts will result in increased gambling, as government actors will begin to rely upon gambling revenues, whatever their amount, and they will therefore encourage the activity. This is especially the case where the gambling is conducted as a government enterprise (e.g., state and provincial lotteries). Increased gambling can have a depressing effect upon other tax revenues when the gambling products are substitute purchases replacing the sale of other goods, which would also be taxed.  Mindful of these arguments, when Great Britain legalized commercial casinos in 1968, the nation purposely provided that there would be no special casino taxes. The government simply did not want government officials to have an incentive for allowing the activity to increase.
Additional issues concerning the taxation of gambling revolve around the “fairness” of the taxes. Critics ask: Do the taxes fall most heavily upon poor people, or upon people who can afford to pay more taxes? Of course, proponents of gambling emphasize that taxation in this case is “voluntary”.

See Gambling Systems.

The Republic of Suriname, the former Dutch Guyana, is located on the northeast coast of South America. There are an estimated 450,000 inhabitants; more than 300,000 of these persons live in and around the capital, Paramaribo. Paramaribo is on the coastal plain of the country and is by far the largest and most developed city. Because of the early importation of slave labor from Africa and contract labor from Asia, the society is one of the most ethnically diverse in the world. The main language is Dutch, but English is widely spoken. Owing to the multicultural environment, additional languages commonly heard include Spanish, Hindi, Chinese, and Portuguese as well as the local language, called Sranan.
Suriname has been claimed at various times by England, France, and the Netherlands. It remained a dependency of the Netherlands from 1815 until 1954, when it obtained a parliamentary form of government and the right of local constitutional revision. Suriname became independent from the Netherlands in 1975. In 1980, the country experienced its first military revolution, and during the next fifteen years there were at least three attempted coups. A newly elected democratic government was formed in 1996.
Suriname has the lowest market share of tourism receipts and tourist arrivals of any of the countries in the Americas. Gambling is not a tourist attraction. There is a lottery, which serves as a distraction for local citizens seeking to forget the grueling trials of daily life. Bingo may also take up their time.
In 1962, while still under Dutch authority, casino gambling was legalized by a government corporation, the Landsverordening Hazardspelen. In 1962 the Hotel Maatschappij Torarica opened the first legal casino. Shortly after that the Palace Hotel opened its casino, but it closed in the late 1970s owing to high maintenance and refurbishing costs. Tararica, the only legal casino currently operating, has seventy-four slot machines, four blackjack tables, and four roulette tables. The slots are very popular, with a minimum bet of US$0.25. Blackjack has an average wager of US$10 and roulette US$125. The casino currently enjoys a loyal enthusiastic clientele.
In 1996, the Wild Forest Hotel Resort and Casino and two additional hotel companies were issued casino licenses. The Wild Forest Casino and one other are located in Paramaribo, and the third is two hours’ driving distance from Paramaribo.
Gaming is a privileged industry. Ownership and employment in the casino are limited by the Gambling Act. The district commissioner is authorized to provide permits in compliance with the Ministry of Justice and Police. The district commissioner must approve casino employees with supervisory responsibilities.
The licensee is required to refuse entry to or evict any individual who is believed likely to disrupt the normal operation of the casino. The licensee is required to ensure against alcohol abuse. Patrons who are intoxicated are not to be allowed entry to the casino. Patrons who become intoxicated while in the casino are to be evicted from the casino. Any incidences of disturbances or eviction due to intoxication are required to be reported to the police.