The State Gambling Addiction

August 28, 2012

In the face of slow economic recovery, states are beginning to look to legalizing more forms of gambling as a means of generating revenue. But this approach is utterly misguided, since gambling has often disappointed as a fiscal tool and as an economic development strategy, according to Steven Malanga, a senior fellow at the Manhattan Institute.

Gambling has been an integral part of the nation's economic history.

  • In 1894, the last state-sanctioned lottery ended.
  • In 1964, New Hampshire reintroduced the lottery.
  • Today, 43 states have a lottery system that net an average of $18 billion a year.
  • In 1976, Atlantic City approved the first state-sanctioned casino as a means of fixing the budget.
  • Today, there are 15 state-operated casinos that make $4.5 billion in annual government revenue.

Despite the promised economic benefits, legalized gambling has fallen short of its promise to ease tax burdens and help fix the economy.

  • New Jersey was the fifth most heavily taxed when its first casino opened. Today, it is the second most taxed state.
  • Most states overestimate the revenue brought in by gambling. Oklahoma, for instance, predicted their lottery would raise $150 million. The actual revenue raised was $70 million.
  • Moreover, gambling creates a tradeoff with other forms of consumer spending. In one study, after a state instituted a lottery, consumer spending went down $42 per household.

In addition, severe economic and social problems outweigh the benefits states derive from legalized forms of gambling.

  • The Tax Foundation argues that state lotteries have the steepest of all taxes, since the government keeps an average of 42 percent of betting proceeds. This is higher than the sales tax rate that would be charged if the wagered money were spent on something else.
  • More troubling, the incidence of crime rises as gamblers become desperate and turn to crime to feed their addiction.
  • A National Opinion Research Center Survey found that 20 percent of self-reported pathological gamblers and 11 percent of problem gamblers had filed for bankruptcy at some point in their life, in contrast to 5 percent of non-gamblers.

In spite of the research, politicians continue to cave in to the demands of lobbyists and the public to legalize more gambling as a fix to the current economic situation.

Source: Steven Malanga, "The State Gambling Addiction," City Journal, Summer 2012.

 

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