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Iowa to Raise Tax on Casinos, Industry Outraged

7 February 2011 by admin

NewsleaderThe U.S. state of Iowa is strapped for cash, like most of the states in the Union. It’s an unfortunate consequence of spending lots of money you don’t have. Looking for additional sources of revenue, Republican Governor Terry Branstad is looking to the casino industry.

Before you get excited, that’s not a good thing for gamblers, casinos or any residents of the Hawkeye State. Rather than adding casinos or doing some other form of gambling expansion, his idea of how to use gambling to generate more tax revenue is simply by increasing taxes. I guess no one ever explained basic economics to Mr. Branstad. If your state, which is funded by taxpayers, needs more money, taking more money from those taxpayers doesn’t help the economic status of your state.

Branstad’s plan is to raise the tax on the casino industry to 36%. Of the 17 current casinos, 15 of them are taxed at a rate of 22%, while two of them – Horseshoe Casino and Prairie Meadows Racetrack and Casino – are taxed at 24%. The drastic hike to 36% would hurt business and result in a loss of jobs as well as decrease funding for important community causes, according to the experts.

The General Manager of Terrible’s Casino, Bob Thursby, said that the tax increase “would have a devastating effect on us.” Dan Kehl, the CEO of Kehl Management, who will run the $120 million Grand Falls Casino Resort, which is currently being constructed, feels the same way. He says that if the tax is increased to 36%, the casino project will default on its loans. As a result, he says that he would likely have to sell the casino at a “fire sale price.” Such a fire sale would hurt not only Kehl, but the community as a whole.

If you think this is just about the casinos protecting their bottom line, think again. The communities in which the casinos reside reap huge benefits from those casinos. One unique thing about Iowa’s gambling industry is that for the casinos to be granted a gambling license, they have to partner with nonprofit organizations. In order to keep their license, they have to donate to groups in the community. Charities, volunteer fire departments, libraries and schools are the most common recipients of those funds. Many in nonprofit organizations worry that a tax increase on the casinos will result in less money for them.

Branstad scoffs at the idea. When asked about the problem, he defiantly stated that the casinos have no choice but to pay up. “If they stop their charitable contributions, they lose their gambling license,” he said. While his threat is technically accurate, it is misleading. The casinos are required to still continue their charitable contributions, but they are not required to give as much as they currently do.

Nonprofit groups that partner with the casinos have come forward and said that their contract with the casinos allow those casinos to decrease the amount they contribute if the state raises their taxes. Since they are able to do so, you can bet they will at least consider it. After all, the casinos have to try to remain profitable. Even if they contribute the same amount, though, they would likely compensate for that by cutting even more jobs.

That is why Kehl says that Branstad’s plan is “a job killer.” Branstad laughs the idea off, saying that the casinos are just “crying wolf.” He says that they make plenty of money, so there’s no reason they can’t give more. Branstad’s perceived animosity toward the casino industry is odd when you consider that it is the top tourism draw in the state. The casinos in Iowa collectively bring in $1.4 billion in revenue per year, employing more than 10,000 people. No other tourism industry in the state can match that.

Generally, politicians align themselves with the most powerful businesses in their jurisdiction, but Branstad is taking an almost confrontational posture. Governor Branstad was elected January of this year, but he is not new to the governor’s mansion. He also governed Iowa from 1983 to 1999, making him the longest-tenured governor in the state’s history.

Though a Republican, Branstad is not generally considered a fiscal conservative. During his 2010 campaign, he was opposed by the Des Moines Tea Party, who cited his long history of raising taxes and increasing the size of the state’s government. Despite that, Branstad adopted a conservative pose for his campaign and ran for office on the platform of cutting taxes. Now it seems like Iowa’s voters should have listened to the Tea Party. The casinos and nonprofit organizations probably wish they had.

In fairness to Branstad, though he raised a lot of taxes (sales tax, gas tax, etc.) while governor of Iowa, he also cut a lot of other taxes (income tax, inheritance tax, etc.). Also, his proposed tax hike would bring the casino taxes to about where they were when he took office, before he cut those taxes. The question is, if he thought it was a good idea to cut the taxes then, why would it be a good idea to raise them again now?

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