Are taxes on casinos regressive, like the lottery tax?

Despite the worthy causes lotteries sometimes fund, there has been a lot of political debate over lotteries and gambling generally. Most empirical studies that have examined the “lottery tax” burden have found that the lottery represents a highly regressive tax. Not only do poorer individuals tend to spend a larger proportion of their incomes on lotteries (relative to wealthy people), the beneficiaries of lottery spending (i.e., college tuition subsidies) tend to be middle- to upper-income students. As a result, the lottery can be seen as a government policy that tends to redistribute wealth from the relatively poor to the relatively wealthy. This is one of the most common arguments against lotteries and casino gambling.
     A glaring omission from the literature is any analysis of the tax fairness of casino taxes. There is no conceptual or empirical studies on casino tax burdens. Most papers that address the issue have simply assumed that the demographics of lottery players are similar to casino patrons, so that casino taxes are regressive, like the lottery tax.

Objective:  The purpose of this paper is to analyze the casino tax and show how it is conceptually different from the lottery tax.

Data/Methods:  The tax burden of the casino tax is not obvious, and it requires a careful conceptual analysis. In most states, a tax is levied on the “gross gambling revenue,” or the gambling revenue retained by the casino after paying winning customer bets. In addition, the casino pays standard federal and state income taxes, as applicable. In order to determine whether casino taxes are regressive, one must consider that casino games have the same rates of return (i.e., odds or prices) across states but tax rates differ markedly across states. In Nevada, for example, the tax on gambling revenue is under 7%, while in Illinois, it has been as high as 70%. If the odds do not vary across states but tax rates do, one can argue that the tax burden is falling on casino owners rather than patrons. However, casinos may attempt to shift the tax to their customers by charging higher prices for other goods (i.e., hotel rooms or restaurants), “comping” fewer goods and services, etc. The analysis focuses on tax rate structures, industry pricing, and casino patron demographics in a cross-section of states. An important issue is a discussion of what the casino “product” is. Is it just a bet on the roll of the dice? Does it include staying in a hotel, attending performances, etc.?

Expected Results:  I expect to find that the casino industry is not able to effectively shift the tax burden to consumers, which will contradict what is typically assumed in the literature, that all taxes on gambling are regressive.