A Modest Proposal: New sources of tax revenue during the US economic depression
Unemployment is skyrocketing. Housing prices are crashing. Income, sales, and property tax revenues are plummeting. What will the government do for money? Recent research by the Federal Reserve reveals that the police hand out more tickets during recessions, we'd guess to do their part to collect the tax revenues that pay their own salaries. What else can government do to make up for tax shortfalls? We have some ideas.
We propose that a wide range of human behaviors now considered sinful or self-destructive be legalized. Social costs be damned. Desperate times call for desperate measures.
(Jonathan Swift's original "A Modest Proposal" Essay.)
Legalize all gambling
The commercial gambling business already delivers billions in tax revenue.Gross gambling revenue (GGR) ... in 2004, for example, the commercial casino industry [was] more than $30 billion, but paid over $12 billion in wages and benefits and more than $4.9 billion in taxes, plus other expenses. - American Gaming AssociationThe government gambling business is even bigger.
In fiscal year 2005, total consumer spending on lotteries surpassed $50 billion, and the average American spent $177 playing the lottery. Over $15 billion of this revenue was transferred to state coffers. The significant revenue raising potential of state lotteries raises serious tax policy concerns. Although no government agency is willing to call the lottery a tax, it is nonetheless a source of implicit tax revenue. - Tax FoundationEven as state lottery revenues decline during the depression, there are many missed opportunities, such as video lottery terminals (VLTs) that bring the lottery to the gambler, so they don't have as far to go. This analysis forecasts a $300 million per year revenue opportunity for the state of Florida alone.
But the great untapped source is Internet gambling. Especially during a depression when the unemployed are holed up in their apartments, condos, and homes, with their Internet connection their main source of outside contact, government should not miss out on this critical source of revenue, and if Rep. Jim McDermott gets his way, it won't.Protect online gamblers, collect tax revenuesYour government is very concerned about your safety when you are gambling online. The billions in tax revenue that the government can earn by regulating it is not the intent of the regulation, mind you, but is a fortunate side-effect.
By Rep. Jim McDermott (D-Wash.)
Posted: 03/11/08 06:10 PM [ET]
As members of Congress, we have a duty and responsibility to act in the best interests of the American people. That’s the outcome I see with passage of new legislation that I introduced as a companion bill to Rep. Barney Frank’s (D-Mass.) proposal regarding Internet gambling.
Today, countless Americans are wagering online — but offshore, because Congress made Internet gambling illegal just a couple of years ago, with virtually no debate or hearings. The net result is that Americans have no protection when they wager online and Americans are vulnerable to scams and unscrupulous operators. I think Congress should do something about that.
We all recognize that the Internet presents emerging opportunities in commerce and entertainment, but we also know there are dangers lurking online. That’s why we have taken thoughtful steps in recent years to bring a delicate measure of regulation to online activities in order to protect the American people.
What’s more, the U.S. Treasury is losing billions in revenue every year from offshore gambling because we cannot enforce existing tax laws. In good economic times we might see that as an unfortunate oversight, but in bad economic times, like now, we should see it as totally unacceptable.
H.R. 2607, the Internet Gambling Regulation and Tax Enforcement Act, would protect Americans even as it restores tax fairness. Currently, all of the legal online gambling companies are based outside the U.S. and thus are not subject to U.S. taxation. Under my proposal, however, a condition to be licensed to conduct business in the U.S. would be a requirement that each licensee submit to U.S. jurisdiction to ensure the ability of the U.S. to enforce payment of all taxes due — including state taxes, generating new revenues for any state that chooses to allow Internet gambling under the federal license.
Preliminary revenue estimates prepared by the respected accounting firm PricewaterhouseCoopers indicate that regulating Internet gambling could generate between $3.1 billion and $15.2 billion in federal revenues during the first five years, and between $8.7 billion and $42.8 billion over the first 10 years. Additional revenue to the federal government would come from income tax on the operators’ profits and on the winnings of individual gamblers.
Legalize all prostitution
Legalized prostitution can generate hundreds of thousands of dollars per brothel in annual license fees, plus payroll taxes, plus sales taxes.The county expects the newly approved, 40-room brothel to generate $200,000 to $250,000 in room taxes each year. - American City & County MagazineA population of 50,000 males can support one brothel. As of the last US census there are 90 million males between the ages 20 and 64. The US is missing out of the tax revenue it can collect from 1,800 brothels producing approximately $200,000 per year in tax revenue or $360 million.
When it comes to lost tax revenue, compared to gambling and prostitution, nothing beats drugs.
Legalize Class C drugs
Legalize and license all Class C drugs (Cannabis, tranquilisers, some painkillers, Gamma hydroxybutyrate (GHB), Ketamine) to America's largest existing alcohol and tobacco drug peddlers -- Anheuser-Busch, Castle Brands, Constellation Brands, Philip Morris International, British American Tobacco -- and tax the products they sell.The money spent on marijuana, consequently, removes $112.9 billion from the gross domestic product, and results in a loss of payroll expenditures by businesses of $19.7 billion. Allowing for 15% federal income tax, 15% social security tax (combining individual and employer shares), and estimating a state income tax rate of 4.7%, this results in a loss of $6.8 billion in taxes for state and the federal government. Assuming an estimated sales tax of 5.4%, the result is a loss of $6.1 billion in tax revenue for state governments. Assuming an effective corporate tax rate of 2.6% of gross revenue, the result is a loss of $2.9 billion in tax revenue. This minimal model produces a total loss of tax revenue of close to $15.9 billion. - Drug Science.comNot only can the government collect tax revenue on drugs sold and from drug companies, but they can cut drug policing costs, too.In 2004 total US expenses on the criminal justice system (police protection, the judiciary, and corrections) totaled $193.5 billion(57). The cost allocation employed by the ONDCP report on the costs of drug abuse is to calculate the cost of drug law enforcement by using the percentage of drug arrests. In 2004 marijuana arrests accounted for 5.5% of all arrests. Consequently marijuana arrests cost taxpayers $10.7 billion in 2004.If we include all of the other Class C drugs, we're talking at least twice that. Call it $100 billion in new tax revenue and drug law enforcement cost reductions.
Taken together, the lost tax revenue from the diversion of funds to the marijuana market and the cost of marijuana arrests produce a budgetary cost to local, state and the federal government of $41.8 billion.
The recent demise of Wall Street creates a vacuum that drugs, prostitution, and gambling can fill, and our list is by no means exhaustive, but it adds up to hundreds of billions in revenue opportunity that our federal, state and local governments can't afford to pass up as the US economy collapses.
- Debtor's Prisons
- Euthanasia Clinics
We're certain readers can think of others. All of these avenues need to be pursued -- any and all to avoid confronting the need for politically inexpedient long term policies to increase productive capacity, reduce consumption, increase saving, decrease private and public sector debt expansion, and dependence of foreign borrowing. No one ever got elected by proposing policies that increase short term pain, and drugs, gambling, and proposition not only relieve these for millions but provide a critical source of tax revenue in the bargain.
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