Small: Deduction cap may play role in casino debate

Deduction cap may play role in casino debate

By Jonathan Small

When it comes to the ongoing debate over renegotiation of state-tribal gaming compacts, there’s an elephant in the living room everyone pretends to ignore for now, but that may soon play a big role in negotiations.

In 2018, lawmakers voted to cap income-tax deductions at $17,000 per return. That’s a problem for Oklahoma casino operators—several of whom supported the 2018 tax hikes—because it hits many of their customers. It turns out a lot of people lose a lot of money in Oklahoma casinos. This fact was highlighted recently when the senior counsel of the Chickasaw Nation said California is the only state where more money is spent on gambling than Oklahoma, and on a per-person basis California gets just $90 per citizen versus $407 in Oklahoma.

The huge per-person gap is a reflection of the size of the losses experienced by gamblers in Oklahoma.

Oklahoma’s casino interests are promoting a bill to exempt gambling losses from the deduction cap even as they resist Gov. Kevin Stitt’s call to renegotiate gaming compacts.

Stitt has the stronger case on the merits. But he may also have more leverage thanks to the casinos’ desire for a gambler tax break, which would act as an indirect taxpayer subsidy of their operations.

In Oklahoma, only tribal governments can operate casinos. In exchange for area monopolies, they pay a state fee in return. But Stitt has shown Oklahoma’s share is far less than in most comparable gaming markets.

Tribal casino fees in Connecticut, New York and Florida all run up to 25 percent. In Oklahoma, the fee on slot machines tops out at 6 percent. Notably, two Oklahoma tribes are entering an Arkansas market despite its top rate of 20 percent.

Casino operators counter that other states’ gaming compacts charge less, and sometimes nothing. But those markets don’t compare to Oklahoma, which has the nation’s largest casino.

At the same time, Oklahoma casino operators argue our gaming compacts auto-renew and the 6-percent fee remains locked in place throughout eternity. But Oklahoma’s gaming compacts state “this compact shall have a term which shall expire on January 1, 2020.” Why include a concrete expiration date in a contract with no expiration?

In exchange for higher fees, the governor has said he is open to allowing casinos to offer sports betting, a lucrative proposition. And the proposed gambler tax break looms in the background, even if no one is discussing it in public.

Oklahoma gambling is a monopolistic enterprise, not a free market. Taxes on gambling in Oklahoma are less than taxes on a bottle of water or groceries. Most businesses are subject to either corporate or pass-through income taxes. Businesses and homeowners pay property taxes, but not casinos. Especially in this situation, the governor has made a strong case Oklahoma casinos should at least pay market rates. And there’s no reason this can’t be a win-win for both sides.

Jonathan Small serves as president of the Oklahoma Council of Public Affairs.