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Why governments want to encourage and legalize casino operators

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Sep. 9 2014, Updated 1:00 p.m. ET

Tax revenue potential

A casino’s ability to generate tax revenues is important. Casinos pay substantial amounts in taxes to the government—at the federal, state, and local level. However, the actual amounts vary widely from state to state.

The table above outlines the industry’s total impacts in the top gaming markets throughout the U.S. This takes into account consumer spending on diverse entertainment offerings at casino properties. It also considers how casino purchases impact suppliers. It looks at employee spending in the broader local economy.

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For gaming markets—like Chicago, Philadelphia, Yonkers, Pittsburgh, and Lawrenceburg—gaming taxes are a significant component of the total tax. States like Florida have a gaming tax rate of 35% on slot machines. In Maryland, gambling facilities are taxed at a rate of 67% of all gross gaming revenues. In Rhode Island, table gaming attracts a tax rate of 18%. Video lottery terminals attract an effective tax rate of 27.5%. Governments in some states like New York, Nevada, Oklahoma, and West Virginia use tax revenue to help fund education development.

Casino companies including Las Vegas Sands (LVS), Caesar Entertainment (CZR), MGM Resorts (MGM), and Penn National Gaming (or PENN) have wider social and economic implications. Exchange-traded funds (or ETFs) like the VanEck Vectors Gaming (BJK) and the Consumer Discretionary Select Sector SPDR Fund (XLY) expose investors to the leisure industry.

Casino tourism revenues can provide major benefits for cities and entire countries. As a result, governments want to encourage and attract casinos. The potential for tax revenues is one of the main drivers behind the growth in the casino industry. National and state governments worldwide are more willing to legalize and license online gaming operators.

Employment generation

The above chart also shows how casinos generate employment. Higher employment increases a country’s output. An increase in output leads to more revenue. The higher revenue means that more taxes are collected by the government. This reduces the government’s budgetary deficit.

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