The smart choice

March 28, 2004

THERE'S WIDE support across the state for the Thornton plan's big increase in state aid to education, ultimately an average of more than $1,500 per pupil per year. But in deciding how to pay for a large part of this badly needed increase, Marylanders now face a stark choice: Gov. Robert L. Ehrlich Jr.'s plan to legalize slot machines or House Speaker Michael E. Busch's plan to increase state taxes.

We believe Mr. Busch presents a smarter choice. Funding schools with slots isn't just lousy public policy, it doesn't even add up in dollars and cents. Here's why:

Overall, slots likely would take more cash out of Marylanders' pocketbooks.

Mr. Busch would increase taxes by $670 million a year. For the schools to get that from Mr. Ehrlich's plan, about $1.5 billion would have to be lost to slots. Subtract a possibly high estimate of $500 million from out-of-state gamblers, and Marylanders still would have to cough up $1 billion - or 50 percent more than Mr. Busch's tax increases.

Slots might very well function as a more regressive tax than Mr. Busch's plan.

Mr. Busch wants to increase the sales tax, a flat tax that hits lower-income residents harder. But he's muted that effect by increasing the state tax credit for the lowest incomes and adding a higher tax rate for the very highest incomes. He says the average Marylander would pay only $20 more in taxes to dent the Thornton bill.

With Mr. Ehrlich's plan, you wouldn't pay a cent for Thornton unless you gambled. Studies show the most likely gamblers are those living within 35 miles of the parlors and those prone to compulsive gambling (who alone can account for up to a third of the total take). Mr. Ehrlich's plan - possibly putting four of the six parlors in Baltimore City and Prince George's County - would regressively tap most deeply those and other low-income, predominantly black areas.

Doubt that? A new state Planning Department study of the lottery shows that just 12 Maryland ZIP codes provide 20 percent of all lottery revenues - with per-capita sales more than twice the state average. These ZIP codes average twice the state poverty rate and are two-thirds black. Almost all are in Baltimore City and Prince George's.

A dollar lost to slots could often be a buck not spent elsewhere that would have been taxed at a higher rate.

To compete with nearby states' pay-out rates, Maryland likely will return to gamblers about 92 cents for every $1 played. State schools would get 46 percent of the remaining 8 cents - an effective tax rate of less than 4 percent. If that buck instead were spent on, say, clothing, the state would get more, 5 cents - or 6 cents under Mr. Busch's plan. Thus, the slots windfall would be partially reduced by falling sales tax revenues from some degree of reduced spending elsewhere.

Slots are hardly a free lunch.

Studies show slots would increase social and business costs across Maryland. There inevitably would be more pressures for local tax increases to meet rising demands on law enforcement, court, health and family welfare agencies. Businesses would suffer more thefts and productivity losses. Estimates of the damage reach as high as hundreds of millions of dollars a year - offsetting slots gains.

So if you're sitting in Maryland's well-off suburbs content that you don't gamble, no politician would dare stick slots nearby and the machines would fund your schools, do the math and think about the relative benefits of Mr. Busch's plan. Once slots come, few will fully avoid being played for a sucker.

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