31.5.07

CASINO SOCIALISM. It's the end of May, which means frustration for Brewer and Cub fans, as well as the annual Illinois state budget impasse. Although many commentators will note the relatively low and nearly flat 3 percent tax rate in Illinois and suggest it's a low tax state, a quick look at Illinois utility bills, let alone the preponderance of user fees (restaurant sales taxes and the out-of-state toll rates come to mind) suggests something very different. An article that suggests the latest revenue raising dodges suggests a different hypothesis. Perhaps complicated and convoluted tax codes provide smart people with opportunities to evade their taxes, so the solution is to make even more convoluted tax codes that give the illusion somebody else is paying.

Now that his plan to raise $7.6 billion by taxing businesses is in tatters, [Governor Blagojevich] told reporters that Democrats must stick together in order to keep Republicans from gaining a voice in budget negotiations.

For him, that means giving up on his gross-receipts business tax plan and joining forces with Senate President Emil Jones, D-Chicago, who wants to raise money for state programs through a massive expansion of gambling.

I hesitate to get into the complexities of tax incidence in what is likely to turn into a long post anyway, but the appeal of a gross receipts tax to the W-2 recipient filing a Form 1040 is that it appears the tax is being paid by businesses, and by taxing gross receipts, it appears as though businesses cannot avoid paying taxes by reporting losses (and I remember enough elementary accounting so as to be able to suggest that very profitable businesses can report all sorts of losses for tax purposes.) A "gross receipt" means that some consumer, often a W-2 recipient, has paid some money to the business. That's where the tax incidence complexities begin: I hesitate to assert that workers pay all taxes, but some part of the gross receipts tax payment ought properly be assigned to the worker.

Instead, legislators continue the pursuit of gambling revenues.
The gambling expansion plan was sent to the full Senate after an 8-5 committee vote Friday. The legislation would add four new casinos in the Chicago area and allow the state's existing nine casinos to add gaming positions.
An incidence analysis of gambling is even more complicated than that for the gross-receipts tax. To some extent, new casinos will divert business from existing casinos, meaning the incremental tax revenue yield might not be as large as some optimists expect. Furthermore, casino patrons are not necessarily the richest or most productive citizens. On the other hand, perhaps casino patrons are larger net users of state services. There's a research project in there for somebody.

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