Tax & Budget In the News

Compared to casinos, a proposition with associated downsides, closing tax loopholes is win-win

Whatever you think about gambling, there's little disagreement that current proposals for casinos are driven by the desire for more state revenue. If new sources of revenue are necessary, then earlier proposals for closing corporate tax loopholes are a surer bet than the $450 million a year the Governor hopes can be generated from a new gambling industry. Compared to casinos, a proposition with associated downsides that proponents have described, closing tax loopholes is win-win — we generate more revenue, and level the playing field for in-state business at the same time.

The Patrick administration suggests that its plan for three casinos would generate $2 billion in annual economic activity, 20,000 jobs, and yearly state revenues of $400-450 million through licensing fees and revenue-sharing. The governor's revenue estimates come from a one-time payment of $600-900 million he expects for selling three 10-year licenses at an auction, plus the greater of $100 million or 27 percent of annual revenue from each of the three casinos, plus extra income he expects will be generated as a result of additional economic activity. The sure bet, based on the governor's plans, amounts to $60 million a year spread across 10 years plus $300 million in annual revenue sharing — or $360 million a year.

·  As far as revenue from additional economic activity and jobs, that is a long shot at best. Other communities that have introduced casinos around the country have not seen such economic development booms. A Harvard study done in conjunction with Professor Bruce Sacerdote at Dartmouth in 2005 found that communities introducing casinos saw increased population, but not an increased employment rate nor increased public revenues. On a per-capita basis, local governments near casinos actually saw slower revenue growth than comparable localities.

In sum, if Massachusetts can get casino owners to commit to the proposals as the governor has proposed, then the state could expect $360 million a year in revenues. And maybe there will be enough casino visitors to reach the $450 million in revenues the administration predicts. But the economic development benefits look like a bad bet.

·  Gov. Patrick was swept into office on a campaign of hope that was about what we could all accomplish together. While polls differ, few Bay Staters seem downright enthusiastic about casinos. Many citizens, however, are willing to support casinos in order to raise revenue for schools, roads, bridges, parks, public safety, and other necessities. Earlier this year, Gov. Patrick filed a bill to accomplish just that by closing eight corporate tax loopholes that would raise $500 million a year. It's time to look seriously at that idea.

Closing corporate tax loopholes will have other benefits beside revenue. Massachusetts businesses will best thrive when their success depends on efficiency and innovation, rather than finding accounting tricks to avoid taxes. The present flaws in the tax system put Massachusetts-based companies at a competitive disadvantage against multi-state companies which can use out-of-state subsidiaries to avoid taxes.

Another loophole unfairly disadvantages hotels who sell rooms in person or over the phone — and therefore can't exploit a loophole allowing Internet vendors to charge customers full price but pay taxes based on much lower prices. Whatever your perspective about the level of taxes, our taxes should be fair. Some taxpayers should not be required to pay more while others pay less through unintended, outdated or unreasonable tax breaks.

·  Fixing these quirks of the tax code makes sense for a modern economy. "Combined reporting," which would close out-of-state tax dodges, has been approved in other states representing 51 percent of the nation's commerce. Closing the "check the box" loophole would similarly bring Massachusetts into conformity with the other 45 states that forbid the same company from declaring different corporate ownership forms to state and federal tax authorities depending on the tax benefits. Likewise, closing the "telecom loophole" would finally end a 1915 tax exemption meant to help bring telephones into people's homes.

Policy-makers are grappling with difficult issues over how the negative effects of casinos could be minimized. It's good that legislators confront questions about traffic in nearby communities, increased bankruptcies and gambling addiction, opening the door to additional tribal casinos, and the like. But it's also worth remembering that there are other options. The Legislature should not be like a gambler anguishing over which Keno numbers are best to play while there is an alternative which doesn't rely on luck. Regardless of whether you support or oppose casinos as a way to boost state revenues, we should close loopholes before even beginning that conversation.

Deirdre Cummings is the budget and legislative director for MASSPIRG, a non-profit, non-partisan public interest watchdog group with members across the state.