Are delusional political beliefs really free?

Higher tourism taxes will burden all Nevadans.

By Doug French
  • Thursday, May 22, 2008

Nevada State Education Association president Lynn Warne, despite polls showing 70 percent voter support for the union's petition to amend the state constitution and increase the gaming tax, folded her hand just a day before the required signatures were to be turned in, calling off the gaming tax hike petition.

Warne bailed when Harrah's, Stations and Wynn Resorts agreed to back a 3 percent hike in the room tax to be placed on the ballot as an advisory question and put it in the hands of the Legislature next year.

Local gaming companies Boyd Gaming Corp. and Station Casinos lost $32.7 million and $29.7 million, respectively, in the first quarter of this year. And business isn't much better on the Strip, with Harrah's recording a first-quarter loss of $187.8 million. Now doesn't seem the time to kick the state's number one industry while it's down. But that's exactly what the teacher's union was threatening with its petition to increase gaming taxes by more than 44 percent (from 6.75 to 9.75 percent).

The petition called for 40 percent of the additional revenue to be earmarked for higher pay for teachers and other school personnel, 20 percent for teacher incentive pay and to compensate them for out-of-pocket costs, and 40 percent to add instructional days, reduce classroom overcrowding and fund teacher training programs.

Voters are smart enough to see the harm this tax would have caused the state economy. But, once in the voting booth, would they actually have applied that intelligence?

Virtually everyone in the state depends on the success of the resort industry for his or her livelihoods, either directly or indirectly. After the Clark County School District and Clark County, the largest employers in the Vegas valley are gaming companies. And existing gaming taxes pay most of the salaries at the school district and the county.

So voters would have cut their own throats if they had passed the measure. Now that the entire world is in the gaming business, the gaming tax couldn't be passed on to the consumer. Not to mention the ongoing inflationary recession. Stockholders, suppliers and employees surely would have paid the tax increase. Stockholders would have paid in the form of lower returns, meaning that future investment would be curtailed. Suppliers would have paid through lower prices and less demand for their goods and services, with the result being less investment and more job layoffs. And resort employees would have paid by working fewer hours or being laid off completely.

So, did Ms. Warne outfox the savvy gaming operators, by getting them to support a significant increase in the room tax (again a tax that cannot be passed on to tourists), knowing that the wise voters of Nevada would have voted down the union's gaming tax increase because they know how harmful it would be? Not hardly.

As George Mason economics professor Brian Caplan explains in his new book The Myth of the Rational Voter: Why Democracies Choose Bad Policies, people behave in the voting booth and in the market in very different ways. At the store, consumers care most about price and quality and act accordingly. So even if the choice is between a good imported from a foreign country and a domestically made product, the consumer at that moment of purchase won't care about the protectionist arguments – the cost of excluding foreign goods is personally too high.

However, that same consumer, while in the voting booth, may vote to place high tariffs on imported goods, because he believes that American jobs will be saved and his vote makes him feel good. The important thing is that his vote for protectionism doesn't cost him anything, unlike a purchasing decision he might make at the store. The consumer/voter knows that the odds of him affecting the outcome of an election are nil, and so he can afford to be what Caplan calls rationally irrational.

Similarly, many Nevada voters, if given the opportunity, could (and likely would) vote for a punitive increase in the gaming tax because they "support education" or "think teachers should be paid more" because the vote doesn't cost them anything directly. "Since delusional political beliefs are free," Caplan writes, "the voter consumes until he reaches his ‘saturation point,' believing whatever makes him feel best."

So while average Nevadans practice intellectual self-discipline in their day-to-day lives in order to make ends meet, they often max out emotionally in the voting booth because the cost is low.

Although Lynn Warne had the strongest hand, Nevada voters won when she threw in her cards.

Doug French is a policy fellow of the Nevada Policy Research Institute.

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