A Lesson for Democrats

There was a story in this morning’s Baltimore Sun about our casinos here in Maryland, and it’s demonstrable for one key point that is prevalent throughout the story:

When plans called for a Harrah’s to rise not far from M&T Bank Stadium, the Baltimore casino was slated to have 3,750 video lottery terminals delivering 67 percent of revenue to the state. 

Instead, a Horseshoe casino — a brand known for its ties to big-money poker games — will fill the vacant lot on Russell Street. It will house 2,500 slots, with the leftover space used in part to accommodate 900 seats around 130 table games. The state receives only 20 percent of table games revenue. 

Horseshoe isn’t the only Maryland casino to dial back on its slot machines in favor of more lucrative table games, approved by state referendum last November. Hollywood Casino in Perryville has cut its slots from 1,500 to 1,148, Maryland Live Casino idled several hundred slot machines to make room for table games and the Rocky Gap Casino Resort opened last month with 558 machines, down from the 850 first proposed. Still, casino operators and state officials say the shift toward poker, blackjack and roulette won’t reduce Maryland’s cut of casinos’ windfall.

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There is one word that is key to this entire story: taxes.
When slot machines were introduced in Maryland, as the story notes, slot machine revenue was taxed at a rate of 67%. When table games were authorized after the adoption of last year’s Constitutional amendment, those games were taxed at a rate of 20%. So naturally, the casino operators decided to scale back the amount of slot machines they were offering to the public in order to place more of a focus on table games. Of course, this is a simple economic lesson; the casino operators get to keep 33 cents of every dollar in profit on slot machines, while they get to keep 80 cents of every dollar of profit on table games.
It’s an example of a lesson that even Democrats should be able to easily understand: business flows towards areas with lower tax rates than with higher tax rates. While the statewide business climate cannot be boiled down to a simple comparison between slot machines and table games at casinos, it is a convenient and useful demonstration that capital always flows towards an environment that has a lower tax rate. So for example, much like casinos moved their operations more toward table games, so it is that businesses in Maryland will move their operations toward lower-tax states like Virginia.

This example even gives us, as expected, a small example of the Laffer Curve as well:

Stephen Martino, director of the Maryland Lottery and Gaming Control Agency, said he wasn’t troubled by the trend toward fewer slots and more table games. “The state is not going to see less money,” he said. 

With three of four Maryland casinos running table games, the trend has been positive. The state’s casinos paid $32 million in taxes in February, the last month without table games, and $37.2 million in May.

The example of the shift of casinos away from slot machines and toward table games is not a perfect example (especially when one considers how much more potentially lucrative table games are than slot machines) but it is a simple example that Democrats can learn from; when taxes are lower, economic development follows.

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