Gambling With Our Tax Dollars

Fired. Can you believe it? Governor Hickenlooper fired the entire gaming commission board. Their sin? They granted a tax rate reduction for Colorado’s casinos. When Coloradans are facing layoffs, wage cuts, increasing energy and grocery costs; and when the State is short on revenue and struggles to close budget shortfalls, these commissioners granted a tax rate reduction to one industry. Hickenlooper, in a fit of populist rage, appointed a new board that he hopes will reverse the tax cut.

The gaming commission is charged to “encourage business growth and investment in the gaming industry and to permit licensed operations…to realize a fair and just profit.” Isn’t that what the commissioners tried to do? In their judgment, a 5% tax rate cut would help the gaming industry achieve a “fair and just profit.” Keep in mind that statewide gaming revenue dropped an average of 7% during the last three years. 

You might ask, “Where’s the tax cut for all the other businesses in Colorado? What’s fair about that?” That question assumes the gaming industry starts from a fair position. They don’t. The gaming commission sets tax rates for the industry. Whereas other businesses pay 4.63% of their profits, the gaming industry pays a graduated tax on their Adjusted Gross Proceeds. The tax rate can vary from 0% up to 40%. Adjusted Gross Proceeds means the tax is based, not on profits, but on revenue less payouts, which is a higher portion of the same income. Casinos can’t deduct wages, benefits, capital expenditures, interest, depreciation or other normal business expenses. 

This is an industry that asked permission to operate in Colorado.  Colorado said, “Okay, but you’re going to pay dearly for that permission. You will be subject to the whims of an unelected commission. If the Governor doesn’t like what the commission does, you’ll be subject to a whole new commission. You really can’t guess how to budget for Colorado taxes, but rest assured: YOU WILL PAY THEM!” 

Compare that to the tax situation for Gaylord Entertainment’s proposed project in Aurora. We’re not talking quarter slots, this is real money - $300 million in public financing. It’s your money and politicians are gambling with it. 

Gaylord Entertainment wants to open a convention center and hotel with 1500 rooms and 400,000 square feet of conference space. Aurora, Denver, and the State of Colorado are offering subsidies worth over 36% of the projected cost of the project. Governor Hickenlooper, where is your rage? 

They justify this under the premise that it will bring conferences, people, and money to Colorado. The new activity is supposed to generate new tax revenue. According to their website, Gaylord Hotels “strive to make planning easier for you by providing ‘everything in one place.’ From guest rooms and meeting space, to recreation and dining, in a self-contained environment…” Any conventioneers that come to Colorado will not need to visit anyplace other than Gaylord Hotels. 

Reality check: what are the chances that the CEO of a large corporation will say, “Let’s have a convention, hold it in Aurora, and stay inside”? No offense, but…Aurora? Yet that’s what will be required for Gaylord to generate new revenue.  Here are three possible and obvious ways that your tax dollars will fail to generate the predicted tax revenue: 

1. Tax revenue might be diverted from other local hotels, restaurants, and other businesses to Gaylord. Instead of generating new revenue it just relocates it. Businesses that once depended on that revenue could be hurt.

2.  Conferences might very likely continue going to convention centers that are in more exciting locations than Aurora.

3. Gaylord appears to be a healthy, profitable corporation. So did Enron. If Gaylord fails, our tax money has been wasted. 

If it’s a viable, worthwhile project, private investors will invest in it. If it isn’t worthy of private investment, why should government force us to invest? Let’s leave the gambling where it belongs - in Blackhawk, Central City, and Cripple Creek.

Private Sector Jobs - Our Only Salvation

“I will not be satisfied until everyone who wants a good job that offers some security has a good job that offers security”. President Obama said that, speaking recently at an energy-efficient lighting plant.

Whew. I feel better. And more secure. Who wouldn’t want a good job with security? After all, with job security you don’t have to work. You just have to show up. And Obama is setting the bar pretty low - you only have to want the job.  

It seems like a nice sentiment, but it is neither achievable nor desirable. 

There was a time when people had to work to make an effort to get and keep a job. They did that because they had needs and wants.  If you needed food or shelter you got a job that would allow you to pay for food and shelter.  Need a car? Get a job.  Want a better car? Get a better job. Whatever you needed or wanted, working was the way to get it. 

Government likes to give to those who have needs. During the Great Depression the government created jobs through the Work Projects Administration (WPA) and gave them to needy people. During its eight years, nearly eight million Americans received paychecks from the WPA. This was part of the “New Deal,” a huge expansion of the federal government that was intended to end the Depression. 

It failed. As Henry Hazlitt writes in his classic and highly recommended book, “Economics in One Easy Lesson”:

For every public job created by [a] bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. . . . But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $10 million taken from the taxpayers.  

The Depression was prolonged by government-created jobs and excessive government spending. In 1939, Roosevelt’s Treasury Secretary Walter Morgenthau said, “We are spending more than we have ever spent before and it does not work. . .I say after eight years of this Administration we have just as much unemployment as when we started. . . And an enormous debt to boot!” 

As money wends its way through the economy it generally ends up in one of two sectors – government or private. In general, government does not produce. It does not create things and sell them for profit. It does not seek a profit on its employees. It does not save money to invest in a capital project that will generate a profit. Simply put, money that ends up in the government’s coffers does not grow. Only in the private sector does money create more money. Advocates for more government spending claim that each dollar spent by government grows the economy, a “multiplier effect.”  That may be true, but private sector spending has a much greater multiplier. Private spending, savings, and investment turned America into the wealthiest nation in history. Excessive government spending threatens to destroy that wealth. 

Obama will not be satisfied until everyone that wants a good secure job has one.  My fear is that he will keep trying.  The stimulus plan started by Bush and put on steroids by Obama has been an abysmal failure. Obama laughed when he pointed out that stimulus projects were not as “shovel ready” as he thought. His arbitrary and capricious administration has prolonged this recession. Now Obama wants to spend more and tax more. That might work in the short term, but only until the economy collapses further under the weight of an incomprehensively large national debt.  

Government’s role, particularly during this recession, should be to provide the conditions (not incentives) necessary for expansion of the private sector. Get out of the way and leave the wealth and spending to us.