Wynning and Trumping in Sodom and Gomorrah Jude Wanniski July 15, 1996

In just the last two weeks, during the steady, glacial meltdown on Wall Street in the high tech stocks, you may have noticed several stories in the major newspapers about the continued expansion of legalized gambling in America. State and local governments throughout the nation are coming to depend more upon the revenue flow from the licensing of casinos and from lotteries. The big news in Atlantic City is that Steve Wynn has persuaded New Jersey Governor Christie Whitman to agree on a development plan for his new Mirage resort that invests taxpayer funds in a yellow brick roadway that terminates at his slot machines, dice and card games. The decision aces out Donald Trump, who objected loudly to Wynn's joint getting special preferences over his joint. Trump took the decision with such good grace that we must assume he got a side deal from Governor Whitman. Business is business.

We also read now that Steve Wynn, who is a fine fellow and a friend of mine, cheerfully can explain that he has cornered the market on the presidential candidates of the two major political parties. In The Wall Street Journal of fans 7, we learn that even-handed Steve has held serious fundraisers for both Bill Clinton and Bob Dole. This actually has been the tradition in the gaming industry dating back to Sodom and Gomorrah. From 1961 to 1964, when I was a boy reporter at the Las Vegas Review-Journal, casino owners told me the cheapest way to deal with politicians was to give relatively small amounts to both Democratic and Republican contenders, with a bonus to the winner. The practice had evolved in states and cities where gambling was illegal, they said, but in Nevada it was nice that they could discuss it more or less openly. It now has spread to the federal level because of the spread of legalized gambling. The way it works is that the President proposes a new 4% gambling tax and the Republicans schedule hearings. Steve Wynn then holds bipartisan fundraisers and the proposed new tax is tabled. There must not be anything bad about one black hand washing the other or it would not have spread to the rest of American business and industry. Dwayne Andreas has fundraisers for Clinton and Dole, with smaller handouts for Newt Gingrich, the DNC and the RNC, and our government repays this generosity with ethanol tax subsidies that cost American consumers about $4 billion annually. Business is business. The trial lawyers do it. The insurance industry does it. The bankers do it. What the heck. It is the way things are done.

In the Sunday New York Times "This Week in Review" section, we find that as weak as the economy is, lottery revenues continue to climb. There are now 36 states and the District of Columbia that extract more than $32 billion from ordinary folk in lottery sales, up from $9 billion in 1985, with $11 billion left after prizes and administrative expenses are paid. States spent $372 million in advertising last year, urging their citizens to get rich quick. The Times reporter suggests that people who play the lottery are ill-informed, because the payout is typically only 50 cents on the dollar. They would be better off, he suggests, going to a casino, where they could get a 95-cent payout on slot machines and 85% or more at table games. The reporter doesn't understand that time is money and the lottery is quick. Casinos serve a different purpose. Middle-class retirees entertain themselves at the slot machines while small businessmen, of both legal and illegal enterprises, run the money they have kept "off the books" through the table games. In almost every case, the spread of gambling inAmerica has been accompanied by an increase in the complexity of the tax system. Instead of people betting on each other, for productive purposes, they bet on the dice or the cards or the wheel.

The mass of people who play the lotteries in the aggregate know that the payout is a mere 50%, but at least it comes quickly. If you invest the money you save, the pre-tax capital gain may approach 100%, but it comes over a much longer period of time. When taxes are paid, the net may not be as high as 50%. In the last thirty years of inflation, the net payout on capital gains has been negative, less than 0%. This is because capital gains are not indexed against inflation. As we march toward a political economy dominated by the gambling elements of Sodom and Gomorrah and the lawyers and accountants of the Chaos Industry, it is useful to recall that oppressive taxation and monetary inflation have greased the skids for all declining civilizations.

How ironic that a simplified flat tax of 15%, as designed by House Majority Leader Dick Armey, would stop this march in its tracks. The returns for people investing in other people, which is the way a healthy civilization is supposed to work, would immediately increase far beyond the returns of people betting on cards and numbers. State revenues from gambling would sharply decline, but state revenues from people employed in productive enterprises would far outstrip those losses. The social costs of gambling addiction also would recede. Investors who now thrust their cash upon Steve Wynn and Donald Trump to building bigger gambling palaces would find the pair offering bigger amusement parks instead. The Wynns and Trumps don't push casinos because of dark impulses, but because that's where the action is — the returns on investments they can understand.

Knowing I have been making this argument for two decades, a number of clients last year advised me they would short the gambling stocks if they saw real movement toward a simplified flat tax. Alas, Steve Forbes's campaign for such a drastic reform of the tax system was gunned down in the presidential primaries by Bob Dole and his allies, most particularly Ralph Reed and the Christian Coalition. The Coalition, a tax-exempt organization, invested its political capital in Bob Dole last year. When it appeared that Dole was going to be upset by Forbes's flat-tax crusade, the Coalition threw its forces against Forbes and all Dole's other adversaries. Forbes made plenty of mistakes himself, but it should be pointed out that the organized forces of religious renewal in America are nowhere to be found at the secular source of the nation's moral and social degeneration. They are instead engaged in a ferocious debate over the precise wording of the abortion plank in the GOP platform.

In the commentary section of The Washington Times Sunday, I contributed an op-ed essay that touched upon these matters. I made the argument that the core of the nation's problem was in the tax system, but that both major political parties were handcuffed, unable to solve them. Perpetual gridlock and continued glacial decline of our political economy seems practically inevitable, unless a Reform Party of the kind Ross Perot has constructed can serve as a vehicle not only for renewal of the economy, but also for a long overdue realignment of the major political parties. I'd thought Jack Kemp would be the man to do the job, at the head of the Reform Party, and I believe Perot did too. But the political pressures of the status quo and the constraints of the calendar have sharply limited that possibility. If Perot himself is not up to it, it is hard to see any silver linings in the gathering clouds.