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Should we legalize gambling in Alaska?

The New Economy

Posted: Friday, March 03, 2000

I wasn't at all surprised to hear that the Legislature was considering the legalization of video poker as a means to deal with the state budget mess. Although the video poker bill failed in committee on Feb. 18, there is already talk that a new gaming bill will be forthcoming. Is legalized gambling a good idea for Alaska? Perhaps; like so many things in economics, the only correct answer is, ``It depends.''

To many people the single reason to oppose legalized gambling is that it is immoral. As an economist I can say nothing about this. Gambling may be ``bad'' or ``good,'' but this is for you and your pastor to decide, not ivory tower economists. To economists, gambling is just another human activity, one that many people enjoy. It is also a possible source for tax revenue. There are at least three issues that economists consider when analyzing the desirability of legalized gambling.

First, legalized gambling has had mixed results as an economic stimulus. For example, when casino gambling was legalized in Atlantic City, the hope was that there would be an economic renaissance as dollars poured into not just the gambling table but also restaurants and tourist shops. That's not what happened. Most tourists go to Atlantic City for the gambling and little else. Many gamblers even bring sack lunches to eat at the gaming table, leaving only to use the rest room. When it is time for the tour bus to leave, or when they run out of money (usually the latter), they return home. This hasn't been the experience everywhere - for example, economy of Central City, Colo., has shown some benefits from legalized gambling - but it is clear that gambling is not an instant fix for all communities.

Second, it is clear that gambling can be a good way to raise tax revenues. When gambling taxes are levied correctly, it is possible to raise significant amounts of revenue for the city, state, or charity. The catch is that it doesn't work to treat gambling like most other goods and levy a simple sales tax, a point made by the American Institute of Certified Public Accountants (AICPA). According to the AICPA, the most efficient way to tax gambling is to tax the house take after winnings have been paid out, not the value of the money used to play the game. Currently, the state of Alaska taxes pull tab parlors according to AICPA guidelines. In contrast, the city of Juneau levies a tax on the sales price of the pull tab ticket. If gambling is allowed in Juneau or on ferries docked in Juneau, we will have to deal with the issue of tax equity.

Finally, there are income distribution issues to be dealt with. Numerous studies have shown that state lottery tickets are bought overwhelmingly by low income people. The same is true for other low price gambling like video poker. We can expect that many of the players will be tourists, at least in the summer, so legalizing gambling might be a good way for Alaska to tax tourists. But there would be no way to prohibit Alaskans from gambling so we would be taxing ourselves as well. Economists often call lottery tickets and similar gaming ``voluntary taxation'' because no one is required to pay these taxes. Only those who choose to gamble must pay the tax. Too often, it is the poor who pay these voluntary taxes.

Speaking for myself, I'm not sure whether or not I favor allowing video poker and similar games likely to be considered by the Legislature. While I thoroughly enjoy a few cold ones and playing low stakes poker with the guys, I just don't get the same enjoyment from pulling a handle and watching lights flash. I guess that makes me lucky because I won't have to pay that voluntary tax.

I doubt this is the last we'll hear of legalized gaming in Alaska. Barring the adoption of a serious tax plan by the Legislature, we'll see a continuing string of ad hoc plans to raise revenues, with legalized gambling brought up time and again. Alaskans concerned about the long run viability of the state government will have to choose between an income tax, lower Permanent Fund dividends, statewide legalized gambling, or some combination. The choice will be ours and soon.

Bill Brown teaches economics at the University of Alaska Southeast. He can be reached at william.brown@uas.alaska.edu.



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