Some Call a Tax on Gaming Machines a Losing Bet

FRANKFORT, Ky. — The 2020 budget session brings new challenges for lawmakers as they try to make the state’s scarce budget go a long way.

While costs for prisons, pensions, Medicaid and more go higher, the state must figure out how to generate more revenue, one idea being floated around by interest groups is increasing the tax on historical racing machines but right-leaning Pegasus Institute says that would be a losing bet.

Historic racing machines are a type of electronic gambling machine that allows users to bet on replays of horse races, sort of resembling slot machines since payouts are based on pari-mutuel wagering it is legal in Kentucky.

Jordan Harris, senior fellow with Pegasus Institute says the proposal to increase the tax from 1.5% to 3.5% would hurt the horse industry and ultimately Kentucky’s economy.

“It’s a tax increase that would be on the back of one of Kentucky’s signature industries economically but one of the most important industries culturally, we know based on our research and data we’ve looked at that an increase of this kind even though it might sound well dressed up and when you put a bow on it, that it may seem like a sympathetic thing to tax, it would be devastating for the horse industry in Kentucky at a time when the industry is vulnerable,” he said.

It’s estimated the increase in the tax would bring in an estimated $60 million annually. Harris says he’s not confident that number is correct.

“Demand we know is going to go down with tax increases that’s going to diminish the profits, reduce the hours, reduce the number of jobs,” he said. “We’ve looked at these numbers to see exactly what the revenue estimate might be if we were looking at a tax increase and we know for certain that a tax increase isn’t going to equal a tax revenue dollar for dollar with the increase that there is going to be a decline along with those things which always happens with gaming-related taxes.”

Harris further argues the increase in tax would put Kentucky’s effective tax rate much higher on gaming when compared to neighboring states.

Harris says the horse racing industry directly generates $1.6 billion for the GDP and indirectly contributes $5.2 billion.

“The economic benefits are becoming even more widespread, it’s no longer just about Churchill Downs in Louisville and Keeneland in Lexington we’re seeing an expansion of the economic impact of the horse industry,” he said. “The economic impact is so widespread, but even beyond that, the cultural impact and what the industry as a whole means to Kentuckians, what it means to our culture, what it means to our civic pride is so incredibly significant that it can’t be valued, and the historical racing machines have really given the best lifeline and the best kind of advancement opportunity for horse industry as whole in probably a generation.”

Harris says he’s not sure if lawmakers are considering increasing the tax on instant wagering machines.

“I think lawmakers are curious about what exactly that impact looks like and what they should when it relates to that,” he said.

You can find Pegasus Institute’s report here.