Tax and Employment Implications of the Proposed New York Constitutional Amendment to Legalize Gambling On Tuesday, November 5th, voters will head to the polls across the United States. In Washington State, voters will decide whether to require genetically modified foods to be labeled as such. In Colorado, voters will decide whether to approve a 15% excise tax on the legal recreational use of marijuana. Closer to home, in New York State, voters will have the opportunity to voice their opinion on Proposal 1, which proposes the legalization of gambling in the State and the creation of seven new casinos. New York currently is home to five Indian reservation casinos and nine racinos, which are facilities located adjacent to horse racetracks that feature only slot machines and other electronic games. They operate with little overhead since they do not have gaming tables run by human dealers. Did you know that from these nine racinos, New York receives more tax revenue than the states of Nevada and New Jersey combined? The New York racinos are taxed at a rate of 67%, while Nevada casinos are taxed at 6.75% and New Jersey casinos are taxed at 9.25%! If resort style casinos are legalized in New York State, they would likely demand a much lower tax rate, as the operating costs, including labor costs, greatly exceed the low operating costs of a racino. Will the new resort style casinos draw traffic away from the racinos, or is there enough demand for gambling activities in New York to support both? How will the tax revenues generated from the Queens and Yonkers racinos be affected if a full service casino is built within the five boroughs of New York City? If the new casinos are legalized and draw traffic away from the racinos, would the overall tax revenue which is generated from these activities decline? Legalization of the new casinos will increase the employment opportunities in the counties where the casinos would be built. Beginning with the initial construction, there will be a demand for architects, surveyors, construction workers and designers. The casinos will then provide continuing employment for management and hospitality staff, table dealers, security personnel, and cleaning and maintenance staff. The increase in employment will have a positive effect on the economy, especially in the depressed upstate New York area. More individuals will receive a paycheck, which should translate to increased consumer spending on goods and services. Governor Cuomo has stated that if the legalization is approved by the voters, he would not allow a new full service casino in New York City for the foreseeable future. This statement shows his goal is to achieve two objectives: to improve employment opportunities for the upstate counties where the casinos would be located, and keep the new casino traffic away from New York City, where it could jeopardize the large amount of tax revenue generated by the racinos at Aqueduct Raceway in Queens and Yonkers Raceway, just north of the Bronx. The Federal Income Tax Celebrates Its Centennial The federal income tax was signed into law by President Woodrow Wilson on October 3, 1913. In 1913, the basic income tax was only 1% with a surtax that ranged from 1% on net income over $20,000 and up to $50,000 to 6% on net income in excess of $500,000. About 1% of households paid tax. The form was 3 pages long, and the instructions for completing the form were 20 steps and fit on one page. Today, the instructions to complete your Form 1040 are 214 pages long. Today, 57% of households pay income tax and the top tax rate is 39.6%. The top income tax rate has had its share of ups and downs in the 100 years that the tax has been in existence. It jumped significantly in 1918 from its single digit rates to 77%! The top rate was 25% at the start of the Great Depression in 1929 before increasing to 63% in 1932. It was 79% in 1936 and continued to increase as the United States entered World War II. When the Japanese bombed Pearl Harbor in 1941, the top tax rate was 81%. It increased to 88% in 1942, 94% in 1944 and did not drop below the 90s (to 70%) until 1964, the year that St. Louis captured a World Series title, beating the Yankees 4-3. The 70% rate continued until 1981, when Ronald Reagan signed the tax reform acts of 1981 and 1986. The tax rate fell to 28% in 1987, the same year that smoking was banned in federal buildings. The tax rates then gradually increased and topped out at 39.6% in the 1990s. The rates fell to a maximum of 35% before returning to 39.6% in 2013, the year St. Louis lost the World Series to the Yankees’ arch rival, the Boston Red Sox. If you have questions about any of the topics discussed in this newsletter, please feel free to call us. Remember, We’re Here For You.