WOUDENBERG: Rethinking gambling taxes as competition rises

Casinos. Some people love them. Others hate them. But even those of us who question their value to society have to admit they’re a great source of state tax revenue. For Indiana, that revenue has been about $800 million—and that was last year alone.

Fifteen states allow for commercial casinos, 12 with “racinos”—casinos combined with racetracks. In 1993, Indiana became one of those states by making riverboat gambling legal. The effect was to generate millions of dollars in taxes from the approximately 40-percent taxes assessed on such establishments. Indeed, combined with admission taxes and county-wide revenue-sharing taxes, Indiana has one of the highest tax rates on gambling in the nation.

But Indiana competes with neighboring states. Illinois generates about $300 million annually in tax revenue from its casinos. Michigan’s casinos generated $115 million in 2011. And now Ohio has opened a $350 million casino in Cleveland, with three more planned throughout the state.

Indiana’s gambling revenue has begun to decline in the past several years as the market has become saturated with competition. And with less revenue comes fewer tax dollars.

Hoosier lawmakers’ response to this revenue decline has been to look at how the industry is regulated and see how those regulations can be changed to promote the industry and make it more competitive. The goal: Maintain tax revenue at status quo.

On a purely economic level, this is the right move. Regulations typically don’t promote economic growth, so getting the government out of the way to make Indiana’s casinos more attractive than Illinois’ or Ohio’s is sure to be effective.

Of course, all this feels ironic. Here we are in Indiana with a government working to prevent a revenue shortfall by fostering and promoting gambling—at best an entertainment industry, at worst an addictive vice—through regulations and controls designed to grow the industry. And yet at the national level, our government demonizes the “evil” corporations—businesses employing Americans to do what is, at least comparatively, a noble day’s work—and seeks to hike taxes on the “undeservingly” wealthy—that is, the hard-working and innovative Americans in this country.

Why isn’t the reaction of our federal government to do what our Legislature seeks to do? Why not look at the economy and assess what regulations are getting in the way of making us competitive and change them? It seems that, at the federal level, we are either unable or unwilling to connect the dots. There is a fundamental failure to recognize that the source of collected tax revenue is just as important as the end itself of meeting budgetary needs. Gratefully, Hoosier legislators get at least that.

But our legislators should view this gradual decline in gambling tax revenue as a signal that we ought to likewise gradually lower our dependence on that revenue. Businesses and industries ebb, flow, come and go on basic principles of supply and demand. Perhaps this fiscal opportunity has run its course.

While lowering our dependence on gambling tax revenue might mean taxing somewhere else, surely the approach used here translates to the rest of Indiana’s economy. There are always ways we can tweak and change our regulation of Indiana businesses to find more ways to make them competitive, both domestically and abroad. And we are never done closely scrutinizing our state government for ways to make it more efficient and operate on less.

But even more fundamentally, relying on one industry so heavily for tax revenue results in legislation that is guided not by what is holistically best for Hoosiers, but solely by what keeps the money rolling in. We need to break that dependence so our legislators are free to serve Hoosiers.

Until we do that, we are beholden to the golden shackles of the gambling industry. I, for one, prefer Hoosiers to be beholden only to one another.•

• Woudenberg practices constitutional law at The Bopp Law Firm in Terre Haute. Send comments on this column to ibjedit@ibj.com.