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Tuesday, March 1, 2011

Legalized Gambling Debt Can Suffocate a Cities or State in the same manner as the lottery and future pension obligations can.

Just like the lottery can promise instant wealth to those who win, or the promise of exorbitant pensions in the future in exchange for a contract settlement today, higher taxes in the future may result from , the lottery, future pension costs, and legalized gambling.

Lets start with a state run lottery program. Lottery winners in the first year who take their money over the next 20 years create a false profit margin for the state in the first year of operation. While year one of a lottery program will produce high traffic and minimal payouts, by year twenty the lottery program is now paying out 20 years worth of winners, not one year's worth, while still taking in approximately the same amount of money as in year one!

Some may argue, "the lottery has more winners in the first year because they have no other obligations". Well, that just means the lottery is a bait and switch in which the number of winners is kept artificially high the first few years to lure people in and addict them, and then it is switched to a lower overall payout as more and more winners have to be paid on an annual basis.

So the lottery starts off with a bang in year one, and ends up as a whimper in terms of what the state gets as the years pass.

But it's worst than that! The lottery money in California was pledged to go towards public education and only public education, yet politicians allocate the lottery money to public education to help meet the yearly budget obligation. In essence, the lottery money becomes a yearly foundational part of the budget rather than as a "bonus". This then allows politicians to then siphon other pre-allocated public education monies, elsewhere, while making it look like the lotto money actually went to public education.

It appears that most state pension plans will require down the road tax increases or they cannot honor those pensions. Making a promise today, in exchange for the requirement of a future tax increase, seems unethical to me.
Elements of both how the lottery works and how future state pensions are funded may be present when it comes to legalized gambling.
Gambling can only sustain itself if it creates consumer debt among the participants. Consumer debt that requires time to pay off results in more and more interest rate profits going to the banks, and not the city. With each passing year, the citizens of a city or state must incur a bigger and bigger debt for the gambling facility to remain profitable, and this means that with each passing year those same debtors will have less and less spendable income to spend in their own cities and within their own states while more and more INTEREST RATE CHARGES are going to the banks.

Yes, that gambling entity will presumably pay their own share of state taxes, but it still appears to be a one for two state tax trade off. Even if the casino pays state taxes, the consumers who frequent the casino will have an ever shrinking money supply to pay their own debts, and in turn, they will CUT DOWN on the purchases they make at other local stores THAT ALSO PAY STATE TAXES.

One way that gambling's overall harm to a city or state's future tax base could be minimized is if each citizen was assessed a maximum amount of debt they could incur that is based on their income. If the citizen agrees to never go over that assessed maximum debt, and the associated interest rate on that debt would have to be well under 10%, then legalized gambling might not be an economic drain.

Does this mean I am against Las Vegas? Not at all. I think its fine to define gambling as something one does as a "vacation". But when gambling locations start to spring up in every state, and gambling centers become so close to most americans that they can visit a gambling location within an hour's drive, in my opinion that potential gambling habit will ultimately hurt a state's revenue stream, not help it.

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