Don’t deal selective facts on casino debate

In this May 24, 2012 file photo, patrons play the slot machines at Harrah's Casino in Chester, Pa. (AP Photo/Alex Brandon)

Too often, both the proponents and opponents of legalizing casinos in South Carolina cite extreme cases in support of their positions, as is reflected in The Post and Courier’s editorial, “Don’t gamble on road needs” (Feb. 15).

As a South Carolina taxpayer, I find casinos to be an important and interesting public policy issue. But in addition, I also happen to be one of the most published and experienced experts on the economic and social impacts of casinos in the United States, and my work has been cited in the recent ongoing debate in the local editorial pages. I have worked as a consultant to regulatory agencies or testified before legislatures in Florida, Iowa, Maryland, Massachusetts, and Missouri, when they were debating casino legalization or expansion, based on my academic work in this area, which includes two books and more than fifty academic articles.

Thus, I feel compelled to comment on this issue, especially since the editorial specifically cites one of my own research papers (on casinos and corruption) in arguing against casinos in South Carolina. Casinos are a legitimate policy option for our state, and if they’re going to be debated, we should at least to consider both the costs and benefits.

The editorial cites Atlantic City as its main example of why casinos would not work in South Carolina, while simultaneously ignoring evidence on the potential economic benefits. Atlantic City has been declining mainly because of a large increase in regional competition. However, the market for casinos in the Southeast does not parallel that in the Northeast. And certainly, a casino in Myrtle Beach would have almost nothing in common with the failed Revel in Atlantic City — a terrible investment decision from the start — which was cited in the editorial. It is true that casinos are not a magic bullet to solve government funding needs. Indeed, some Mid-Atlantic and Northeast states are finding that the actual casino revenues are below what they had forecasted. But a casino in South Carolina would have little regional competition — a very different situation than the typical casino in the Northeast.

The editorial cites one of my research papers in arguing that we might see more corruption if casinos are legalized in the state. However, the reference to this research was incomplete; our study analyzed corruption convictions in general, not those that are linked directly to the legalization of casinos. In any case, if lawmakers are careful in crafting casino regulations, opportunities for corruption can be minimized.

The editorial argues that the casino tax is “cruel” because it would mostly affect “the poor, the gullible and compulsive gamblers.” While the implicit tax in the state lottery does fall disproportionately on the poor, there is no evidence in the published literature that this is true with respect to casino taxes. Most casinos offer essentially the same games, with the similar odds, whether the casino is located in a low-casino-tax state like Nevada or a high-casino-tax state like Pennsylvania. This suggests that it’s the casino company — and not necessarily the casino customers — who ultimately bear the burden of the tax.

Perhaps the most important potential benefit of legalizing casinos is one that is rarely mentioned in public debate so far. The consumer benefits from a new business or industry are a greater benefit to the economy than any tax revenues. Some people really enjoy playing casino games; they wouldn’t walk into casinos if they didn’t get entertainment value in return for their bets. Casinos would represent a new entertainment option for those South Carolinians who enjoy casino gambling. Just as individuals enjoy a day at the zoo, amusement park, or movies, the activity creates benefits for the consumers who voluntarily choose to spend their money and leisure time in this manner.

Politicians have to make tough choices. If they don’t want to cut spending, then they’re going to have to raise taxes, and this is the benefit seen in the political debates — more government revenue to fund roads. Casino taxes can be politically attractive because they’re “voluntary.” It is possible for individuals to avoid paying the casino tax by simply staying out of the casino. Income taxes, sales taxes and gas taxes, on the other hand, are harder to avoid. And if casinos in South Carolina would attract tourists from out of state, we could potentially have tourists paying a portion of our tax burden. One reason we probably tolerate the 10.5 percent sales tax at restaurants in downtown Charleston and high hotel and car rental taxes is that we want to shift the tax burden to tourists.

The literature has also identified important social costs associated with legalized gambling, and most of the costs are attributable to problem gamblers. But those costs may exist whether or not additional casinos are opened. The prevalence rate of problem gambling in the United States has remained fairly constant (estimated to be between 0.5 percent and 2 percent of the public), despite the enormous expansion of casinos across the country. In other words, there is no clear evidence that casino expansion increases problem gambling. These problems exist now, just under the table in illegal betting that takes place within the state.

The current debate also ignores the evidence showing that casinos increase employment, wages, economic growth, and even property values. And of course, casinos pay a lot in taxes and provide entertainment to their customers. These are impacts that can be estimated and compared to the potential costs, as has been done in other states with whom I’ve been involved.

Certainly, some South Carolinians have moral objections to casinos. But if they are clearly willing to tolerate a legalized state lottery in exchange for the increased funding for education, there is a chance voters would also be willing to consider legalized casino operations in exchange for more funding for roads without a gas tax increase. There is fundamentally no difference between the lottery and casinos. As Post and Courier columnist Brian Hicks correctly points out, “It’s all gambling, the only difference is the flashing lights.” (Feb. 11)

What the casino debate needs is a serious consideration of the empirical evidence from many other states that is available in the academic literature and can be interpreted and estimated for South Carolina. Unfortunately, The Post and Courier’s recent editorial, and the current political dialogue, mostly ignore this evidence.

Douglas M. Walker, Ph.D., is a professor of economics in the College of Charleston’s School of Business and the author of “Casinonomics: The Socioeconomic Impacts of the Casino Industry (2013).”