Unlike some stockbrokers, economists, government officials, and casino executives, we here at Question of the Day, humble servants that we are, don’t purport to be able to predict the future. but we can comment on the implications inherent in your question.
It’s true that the state teacher’s union wants to raise the gambling tax from 6.75% to 9.75%, a 31% increase. How likely that is to happen and what would transpire if it does is anyone’s guess.
But here’re some facts, figures, and speculation, based on an excellent analysis in the Las Vegas Sun by Liz Bentson and Patrick Coolican.
First of all, even as prices rise across the board in Las Vegas, more and more people continue to show up. Obviously, visitors are willing to pay the ever-increasing freight of a Las Vegas vacation. So it seems reasonable to assume that if the tax rate is hiked and the casinos pass some or all of it along to consumers, it will be easily absorbed, especially since even at 9.75%, Nevada’s gambling tax will remain one of the lowest in the country (Nevada has no corporate income tax).
Secondly, as resort amenities, such as dining, drinking, entertainment, and shopping, make up a larger portion of Nevada’s overall revenue pie, gambling accounts for less and less of the tax base. In fact, gambling taxes have gone from nearly 40% of the state general fund ten years ago to less than 30% today. Meanwhile, other taxes have gone up to compensate: sales and use taxes by 7%, the live entertainment and tobacco taxes by 1%, the modified business tax by 9%, the real estate transfer tax by 4%, etc.
So we doubt that even a more than 30% increase in the gaming tax would have too big a financial impact on casinos or consumers.
That said, however, there are intangibles to consider. Two of the most important ones include mood and volatility.
"Mood" means how the markets might react to a tax increase based on one group, teachers, wanting more money for their special interest, schools. (Many recent experiences show that there’s little correlation between the amount of money spent on public education and its quality; see Judge Russell Clark; the Kansas City, Missouri, school district; $1.6 billion extra in school funding from a doubled property tax; and plummeting test scores and soaring dropout rates.)
Based solely on perception, investors small and large could bail on casino stocks, just as your broker predicts. Falling stock prices and market caps could affect credit ratings, which would impact interest rates on loans, which could have consequences for the many developments under way and planned in southern Nevada.
"Volatility" refers to the unpredictability of the Nevada tax climate. If this "teacher tax" passes, what’s to stop the doctors, police, fire fighters, or the politicians and bureaucrats from wanting more money for their special interests? Again, investors might conclude that Nevada is a too-fickle and uncertain place to do business.
Whatever happens, we’ll be tracking it in the Las Vegas Advisor. Stay tuned.
