The Unholy Alliance

By Doug French
  • Monday, February 10, 2003

With MGM Mirage Chairman Terry Lanni’s recent speech supporting higher taxes in Nevada, all of the usual suspects have now linked arms to back Governor Kenny Guinn’s quest for bigger state government.

Big Labor, represented by D. Taylor and the Culinary Union, signed on a long time ago and is spending its members’ dues to help Guinn take more from Nevada taxpayers. Big Gaming— represented by Terry Lanni, Harrah’s Chairman Phil Satre, and Guinn tax-hike panelist Mike Sloan of Mandalay Resorts—are founding members of the Guinn Gang, ready to ride through the cities and towns of Nevada to loot, pillage and plunder. No taxpayer is safe.

What is it that connects these otherwise would-be adversaries? Gaming already pays taxes through the nose. Why do Lanni, Satre and Sloan think their companies should pay more? Why does Mr. Taylor want union members to pay more for gasoline, cigarettes, movie tickets and beer? Not to mention to lose their jobs as taxes begin cutting into the bottom lines of the unionized casinos.

These three amigos—Big Business, Big Labor and Big Government—have been joining together in America since what is known as the Progressive Era, 1900-1916. Gabriel Kolko, in The Triumph of Conservatism, labeled this corporatist alliance “political capitalism.” Typically the progressive era is viewed as a time when numerous “reforms” were put into law to “regulate” business abuses. But Kolko shows it was actually “the leaders of big business—and not the political reformers—[who] became the chief initiators of the era’s ‘progressive’ regulatory laws.”

Now Big Gaming in Nevada is agitating for its own “progressive era,” circa 2003. They know that a tax increase—especially a gross receipts tax—hits start-up and small businesses hardest. Sure, the big companies pay a lot; for instance, MGM Mirage paid $202 million in taxes to the state for the 2001-2002 fiscal year. But MGM Mirage earned $292.8 million, after tax, for the same period and has $2.7 billion in capital. Though these are big numbers, another quarter percent on the gaming tax won’t be fatal to MGM Mirage, or their buddies at Harrah’s and Mandalay Resorts.

But a quarter percent gross receipts tax and another quarter percent added to the gaming tax may put the marginal operators out of business. It will definitely prolong the time it takes a start-up business, casino or otherwise, to “hit the black,” and it will likely stop a few potential competitors from getting in the business at all.

MGM’s Lanni arrogantly states, “if a business with $10 million in gross receipts can’t pay $21,875 to support our schools, hospitals and senior centers, they shouldn’t be doing business here in the first place; in fact they shouldn’t be in business at all.” Oh, really? Most start-up banks, for instance, easily earn $10 million in gross revenues a year, but lose money for the first two to three years. What Mr. Lanni really means is that start-up businesses are not welcome in his Nevada any more.

Of course the Culinary Union is doing its part following the quick capitulation of the MGM, Harrah’s and Mandalay to the union’s contract demands last year. This quid pro quo between the Culinary and the big unionized hotels means a double whammy on the struggling downtown hotels and the marginal strip operators. First a huge union contract is shoved down their throats, then Governor Guinn tells them to open a vein, while Sloan, Lanni and Satre gleefully cheer him on.

Big business has always erected regulations and supported taxes to keep upstart business competitors at bay. After all, it’s small business that creates the new ideas and innovations that seduce customers away from the giant, established firms.

But these small businesses grow and create jobs as they win over these customers. As economists Richard K. Vedder and Lowell E. Gallaway explain in their book, Out of Work, “Small businesses are a major source of jobs, especially new ones, in the American economy. It is large businesses that downsize their labor force. Small businesses create jobs and grow in size. Anything that destroys the profitability of small business enterprises ultimately lowers overall living standards and erodes the economic vitality of the United States.”

Governor Guinn’s unholy alliance with the big guns of Gaming and Labor should be seen for what it really is: a scheme to further cartelize the casino business in Nevada—at the expense of small business, job creation and the living standards for all Nevadans.

Doug French is executive vice president of a southern Nevada bank and a policy fellow of the Nevada Policy Research Institute.

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