Are States Betting on Sins? The Murky Future of State Taxation

[Pages:26]Are States Betting on Sins? The Murky Future of State Taxation

Federation of Tax Administrators Revenue Estimation Conference

September 24, 2019 Lucy Dadayan

Looking back to look forward: Traditional "sins"

? Alcohol (whiskey) tax: first enacted at the federal level in 1791 to pay off national debt incurred during the Revolutionary War

? Tobacco tax: first introduced at the federal level in 1862 as a revenue measure during the Civil War

? Gambling has a long history in the United States, going back to colonial times. However, it was not until the early 20th century that states started legalizing gambling, mostly in response to the Great Depression as a form of economic stimulus

? Kentucky was the first state to formally legalize parimutuel betting in 1906 ? Nevada was the first state to legalize operations of commercial casinos in 1931 ? New Hampshire was the first state to legalize modern-day lottery operations in 1964

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Steady growth in alcohol revenues since Great Recession

Cumulative percent change in inflation-adjusted alcohol taxes and liquor store revenues

20%

1990

2001

2007

15%

10%

5%

0%

-5%

0

1

2

3

4

5

6

7

8

9

Number of years since the start of recession

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Downward trends in state tobacco tax revenues

Cumulative percent change in inflation-adjusted state tobacco taxes

60%

1990

2001

2007

50%

40%

30%

20%

10%

0%

-10%

0

1

2

3

4

5

6

7

8

9

Number of years since the start of recession

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Why do states legalize and expand gambling?

? Raise revenue in response to poor state fiscal conditions ? Stimulate economic development ? Counteract interstate competition for gambling revenue ? Attract tourism & keep gambling residents & tax dollars in-state ? Alignment of political interests in support of gambling

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$579 billion

States raised $579 billion in revenues in real terms in the 55-year history of lottery operations

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Billions

Not much growth in lottery revenues despite expansion

Real lottery revenues ($ billions)

$21 $18

36 36 37 37 37 37 37 37 38 38 40 40 42 42 42 42 43 43 43 43 43 43 44 44 44

$15

34

29 32 32 34

$12

26

22 23

$9

17

$6

17 17

$3 $0

2 3 5 7 8 12 13 13 14 14 14 14 15

2222222222111111111111111000000000099999999999999911111000009999988888777778642086420864208642086420

F Y F Y F Y F Y F Y F Y F Y F Y F Y F Y F Y F Y F Y F Y F Y F Y F Y F Y F Y F Y F Y F Y F Y F Y F Y

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Growth in lottery revenues is often driven by expansion

Year-over-year real percent change, FYs 1990-2018

10%

8%

6%

ID, IN, 4% MN LA, TX

2%

0%

-2%

-4%

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GA, NE

NM

NC, OK SC ND, TN

AR

FY 1990 FY 1991 FY 1992 FY 1993 FY 1994 FY 1995 FY 1996 FY 1997 FY 1998 FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

WY

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