Policy 12: Why tax the rich, when you can get the poor to roll the dice?

Policy:

The State is not permitted to fund shortfalls in revenues through lotteries, casinos or other games of chance. Furthermore, such activity is prohibited for individuals or companies for the purposes of profit or pleasure.

Proofs:

Gambling is well known to be illegal in Islam. Its prohibition was revealed in the following verse:

 “O you who have believed, indeed, intoxicants, gambling, [sacrificing on] stone alters [to other than Allah ], and divining arrows are but defilement from the work of Satan, so avoid it that you may be successful.” [TMQ 5:90]

Propaganda:

Federal, provincial/state and other governments who use lotteries to raise money, argue that it is justified because the proceeds go into “hospitals, community centres and college and university campuses."

Gambling Research Exchange of Ontario (GREO), summarizes the popular depiction of gambling as follows:

“Gambling is commonly featured in movies, television shows, and news outlets. These forms of media often present gambling in a positive way, which can influence audiences’ attitudes toward gambling participation. The ads try to make gambling appear fun and inviting. For example, ads for sports betting often link betting with male bonding and the love of sports. New sponsorships and social media marketing campaigns are replacing traditional ads and may be able to reach a wider audience”.

Counter-Propaganda:

The reality as to why governments turn to lotteries and gambling for revenues is due to the fact they don’t want to collect taxes from the well-to-do. According to the Washington Post:

“[T]axpayers and policymakers turned to lotteries hoping for a financial miracle. Between 1964 and 2013, 44 states enacted lotteries because voters refused to confront the conflict between their demands for tax breaks and their expectations of continued government services. Lotteries spread because they appeared to offer something for nothing, allowing states to provide public services without forcing taxpayers to pay for them. Even as evidence emerged that lotteries were not magic budgetary bullets, states kept enacting them to avoid the painful choice between programs and low taxes. The first wave of state-run lotteries passed in the Northeast [part of the U.S.] in the 1960s and 1970s. Facing budget crises related to the slowdown of postwar prosperity, public officials turned to lotteries as an innovative, simple solution to complex financial problems…Gambling proponents were hardly modest about their revenue expectations. They imagined lotteries not merely as supplemental sources of income but as massive funding mechanisms that could single-handedly balance a state’s budget. New Jersey congressman Cornelius Gallagher wrote in 1969 that if the Garden State enacted a lottery “we could abandon all taxation in New Jersey and increase every service in our state four times over.” Voters agreed with him and bet on the possibility that state spending could expand without their tax dollars. The New Jersey lottery referendum won by a larger margin of votes than any ballot proposal in state history”. [Emphasis Added]

In other words, the use of gambling to fund social programs is driven by the freedom of ownership: people want to get out of paying taxes, so the government turn to illicit sources instead.

Points to Consider:

Why tax the rich, when you can get the poor to roll the dice? Several academic studies have demonstrated how gambling is actually a poverty tax. A 2011 study by Barnes, Welte, Tidwell and Hoffman, “Gambling on the Lottery," summarizes previous studies that came to this conclusion:

  • A 2009 study by Lang and Omiri found that less wealthy as well as African-Americans "lost a higher proportion of their incomes purchasing lottery tickets and engaging in pari-mutual betting than wealthier and white respondents."

  • A 2005 study by Freund and Morris found that state lotteries were a significant contributor to the increase of income inequality.

  • Another study in 2005 by Kearny found the advent of state lotteries caused a shift in spending away from “non-gambling expenditures (e.g., food, rent and other bills), not by a reduction in expenditures of other forms of gambling."

  • In the UK, a 2000 study by Grun and McKeigue found that “the introduction of the national lottery led to an increase in the prevalence of excessive gambling, especially in low-income households."

  • In Australia a 2004 study found "that gambling's taxation implications (against income) was doubly regressive, taking disproportionately from lower income groups and giving to those who were better off financially."

The Barnes et al. study also found results like these studies. They found that “socioeconomic status was related to gambling with those in the lowest fifth [socioeconomic status] group having the highest rate of lottery gambling (61%)”.

A separate 2004 study, Gambling Households in Canada by MacDonald, McMullan and Perrier,  (not referenced in the 2011 Barnes et al. study) found that:

“Low income households are over-represented in the top gambling expenditure quintiles and spend a larger percentage of their income on gambling products than do other household income groups. The convenience and new expedience of gambling in Canada has contributed to a regressive relationship whereby the economic costs of gambling are increasingly borne by those who can least afford the financial costs and related social problems.” [Emphasis Added]

Keep in mind the point made when discussing zakat, taxes should be considered as a proportion to the net asset position of the people – not their income:

“What is the ratio of the taxes they pay to their total wealth? If you take the amount of tax currently paid as a proportion of their assets, we find that rich paid about 1.24% of their asset in taxes. To put this into perspective, this would be like spending $124 if you had saved $10,000…The average American spends about $1000 year on coffee which works out to be 2.0% of the median household wealth of $51,017 - exceeding the 1.2% figure noted above. So…the rich pay less tax - proportionally to their wealth - then the average American pays for coffee.”

Therefore, since the above studies look at the amount gambled as a proportion to income, they actually understate the injustice committed to the poor members of society, since such groups are likely to have no assets or are in debt.

‘Devil taking the hindmost’: Why is society okay with sacrificing a “few” gambling addicts? Consider a tax plan that would result in millions getting an incurable disease, like cancer. Wouldn’t that be evil?

This is the reality of funding revenue shortfalls through casinos, lotteries, and other games of chance, as “Gambling Disorder (GD)” is a mental disorder according to the DSM-V. And gambling causes real suffering in people. In fact, based on this research study conducted by GREO, we know that “problem gambling rates” range from 0.4% to 7.5% in the general population. This addiction causes about one-half of the individuals experiencing problem gambling to commit crimes.  Dealing with this crime costs about $2,200 to $3000 per individual with “estimates life-time costs of arrests to be upward of $10,000 for individuals with severe gambling problems” and causes such people to “engage in crimes with potentially no monetary incentives such as assault, fire setting, carrying a weapon, high-risk speeding, vandalism, and truancy”. Furthermore, people who get jailed because of such crimes are also more likely to re-offend.

There's an expression in Capitalism; ‘let the devil take the hindmost,' meaning only the fittest survive and everyone else can die. Applying this to gambling addiction is like saying: 'if you have a gambling problem it's your problem, not mine.' This is the toxic reality of an individualistic society that trains people to be okay with the weak being put through the meat grinder.

This, however, is an incorrect way of thinking. When some members of society get harmed, we all get harmed. This is what Prophet Muhammad (saw) taught us to have in the following saying:

“The example of the one who stands for the Hudood of Allah and the one who compromises the Hudood of Allah are like the people in a boat, some of whom occupy the upper deck and some occupy the lower deck. Whenever those in the lower deck need water, they have to go to the upper deck to retrieve it. So some of them said, ‘why don’t we make a hole in our deck so we do not harm the people of the upper deck?’ If the people do not stop them, they will all fall and be failures, but if they stop them they will all be saved.”

Putting this saying into practice means you don't let people engage in destructive behaviours – even if it is against themselves. Instead, we should recognize our responsibility towards such people and advise them appropriately.

Russian American Roulette for one’s distant “American Dream”?

Why do we think of casinos, slot machines or winning the lottery as exciting, fun, or a door to endless possibilities? Perhaps, a better question is who put these ideas in our heads?

Society did. It’s a good illustration of what “freedom” really means, where we can “choose” between A and B, but you are encouraged, cajoled or seduced into choosing "B." It reminds me of what Harold Lasswell said about how the system is designed to ensnare you with traps, like gambling, crushing debt alcoholism or other self-destructive behaviours:

"If the mass will be free of chains of iron, it must accept chains of silver. If it will not love, honour and obey, it must not expect to escape seduction." 

 Capitalism offers a false promise to people: if you work hard, you will get ahead.

Most know that the system is rigged. However, what is yet to be realized is that freedom – which the fruition of the American Dream – is a false god; just like the false gods that the Arabs used to worship before Islam. The 2011 Barnes et al. study notes:

“Some have speculated that the link between gambling pathology and lower socioeconomic status is due in part to lower income individuals viewing gambling as a type of investment providing a possible escape from poverty (Welte et al., 2004). In an experiment, Haisley et al. (2008) tested the hypothesis that people who feel poor in a relative sense due to implicit comparisons with others are more likely to purchase lottery tickets; i.e., low-income individuals are motivated to play the lottery to correct for low-income status. The authors found support for the hypothesis in that low-income participants were more likely to purchase lottery tickets when they were primed to perceive that their own income was low relative to a reference point. The authors concluded that for low-income participants, lotteries may be considered a “social equalizer” whereby everyone has an equal chance to win." [Emphasis added]

Gambling is, therefore, seen as a way to achieve that white picket fence and the good life that was promised, but never delivered.

Putting the ‘Casino’ into ‘Casino Capitalism’ Furthermore, the fact that people see gambling as a type of investment is not something that can be easily dismissed. Society as previously discussed is a collective organism. People share a common understanding, mentally and emotionally about how to proceed about things. In a paper that I presented at an academic conference in the early 2000s, I noticed the link between gambling and the following speculative investment bubbles:

  • Tulipomania: Planting tulips had a gambling appeal as there was a chance to get the coveted Semper Augustus and “win a fortune” (Ref)

  • Mississippi Bubble: John Law, the architect of the underlying scheme that enabled this Bubble, made his money through gambling. (Ref)

  • Railway Mania of 1840s: During the 17th and 18th century, the British government actually exploited this phenomenon by raising capital through debt schemes (Tontine Loans and Lottery Loans) that had gambling type payoffs. I also noted in the paper, that “during the 19th century, Lord Ashton commented on the “feverish state of gambling events connected with railways” and The Economist noted the absurdity of the valuations by citing the fact  that  all ten railway proposals sold for a premium, when it was clear that only one proposal would win (Ref).

  • Stock market and Radio Bubble of the 1920s: The 1920s coincided with a “gambling craze” in the U.S. brought on by the growth in organized crime to supply the nation’s illegal consumption of alcohol. (Ref)

  • Tech Bubble of the 1990s: Between 1975 and 1999, U.S. state lotteries increased from 13 to 37, and between 1990 and 1999 casinos went from 2 to 360. In 1998, 125 million wagered money one way or another, and more than 7 million were deemed to have a gambling problem. (Ref)

 The point that I was trying to highlight was how a society that was "pro-gambling” would be more prone to investment bubbles, where people see putting money into "investments" as a chance to win "windfall profits" instead of having to do the tough work of managing a business. However, what the study cited above notes is that this thinking works the other way as well, i.e. that “lower income individuals viewing gambling as a type of investment providing a possible escape from poverty” [emphasis added]. The same mentality that supports betting on sub-prime bonds will support playing roulette at the casino because they end-up being indistinguishable from one another.