For those of you who are unfamiliar with the phrase, calling a U.S. political issue “third rail” means that the issue is so controversial that it is essentially untouchable — that any public official raising the topic is likely to be greatly harmed politically.
The metaphor comes from the high-voltage third rail in some electric railway systems; putting a foot on that rail usually results in electrocution. In politics, that injury would be to a politician’s career, not to his or her actual life, but the metaphor is useful in understanding why politicians are loath to discuss reducing Social Security and Medicare benefits, for example. Some topics are just too hot to want to handle, regardless of how problematical the status quo is.
In an article for Gaming Law Review, Spectrum Gaming Managing Director Michael Pollock used the phrase when discussing tax rates, calling them “the third rail of gaming politics.” (Yes, I’m envious that he offered up a good expression that I hadn’t thought of.)
“Many state legislators from both parties appear to view gaming taxes as a form of free fiscal relief in which someone else—not the state’s taxpayers or voters—are paying the tab,” he wrote. “This perception becomes particularly evident when states are endeavoring to balance their budgets.”
The revenue question will only become more prominent as states add online gaming, sports betting, and other emerging forms of gaming , Pollock noted. “With that in mind, the time has arrived for the casino industry to do something that has long been viewed as heretical, risky, and quixotic: the industry must go on offense, and make the affirmative case for lower tax rates,” he wrote.
In an interview after the article was published, Pollock repeated theme. “Casinos should be on the front foot,” he said. “The industry has the responsibility to make its own case.
“Any state would look foolish if it says ‘we’re just going to lower the tax rate and wait for good things to happen.’ Then the licensee takes that windfall and divests it in, say, a casino in another state, or a dividend to a shareholder. There has to be an economic rationale to justify lower taxes.”
“The tendency, and it’s universal, is to examine the fiscal impact through the narrow lens of multiplying revenues through the tax rate. That’s wrong from a number of standpoints,” Pollock said. States should look at the fiscal impacts of gaming through the widest lens. Lower tax rates can generate fiscal impacts from multiplies cash registers, such as sales tax, employment taxes, property taxes, plus “any number of other fiscal pies that you can add to,” Pollock said.
Spectrum Gaming is a New Jersey-based consultancy firm that specializes in economics, regulation and public policy of gaming worldwide. “I am neither a lobbyist nor an apologist for the gaming industry,” Pollock reminded readers. “I am a consultant, former regulator, and former journalist who has spent nearly four decades studying the economics of gaming, and the economic impacts of this still‐expanding industry.”
Pollock noted that in a 2016 study that Spectrum performed for the Casino Association of Indiana, he wrote that if a casino seeks a reduction in gaming taxes, it should demonstrate why the current rules hamper marketing, how it would develop a more robust, effective business under new rules, and what the overall impact would be to the state, including how increased economic opportunity or increased employment would offset the loss of tax revenue. Otherwise states would be undertaking a significant, unnecessary risk if they chose to lower tax rates.
Gaming licenses are privileges that states grant to achieve a variety of economic benefits, Pollock wrote. His conclusion: “Such benefits cannot be fully realized until states and industry operators are willing to grasp the third rail of politics: the time has arrived to address tax policy on economic, not political grounds.” And casinos need to move quickly, because internet gaming and sports betting are on the runway, getting ready to take off.
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Side note: Spectrum is in charge of the National Council of Legislators for Gaming States, a nonpartisan group with the goal of educating legislators on gaming. The group’s summer meeting is July 13-15 in Cleveland. More information is at NCLGS.org.
