Taxing Gambling: Some Precedents

England's experience with using taxation to raise revenue and discourage gambling among the poor:

Taxing gambling: Some precedents, by Nicholas Tosney, Vox EU: Today, the notion that Britain is in danger of becoming, or has become, a ”nation of gamblers” is commonplace. In fact, the chairman of the UK government’s recently established Gambling Commission has said that “we are a nation of gamblers”. Three hundred years ago, commentators were saying much the same thing. By the late seventeenth century, gaming was so rife that 1.2 million packs of playing cards were produced in 1684 alone – one for every five people living in England.[1] The social and economic context may have been different then, but some of the issues look rather familiar, so it is worth revisiting how eighteenth-century legislators approached the problem of gambling.

Taxing gambling From at least the middle of the sixteenth century, a small tax had been levied on playing cards made in England. But since a third of it went into the pockets of the tax collectors, the government made very little money from gaming. The number of packs of playing cards produced in England increased tenfold during the course of the seventeenth century, something that cannot have gone unnoticed by a government hungry for funds, due to costly wars and economic strife in the 1680s and 1690s. Given that playing card production was centred in London and that cards were used for recreation rather than sustenance, it probably came as no surprise when, in 1710, stamp duty was extended to cards and dice. But few could have expected that this would increase the tax levied on each pack of cards by a massive 2300 percent! There were two immediate results: playing card production was halved and cases of tax fraud rocketed.

From 11 June 1711, every pack of playing cards produced in England had to be stamped by a government official to show that the tax had been paid; otherwise, they could not be sold legally. It was not long before forgers realised that they could profit from making counterfeit stamps, but the stakes were high. In 1743 Thomas Hill forged government stamps on over 3,000 packs of cards. This was not an amateur operation and Hill had even set up a workshop with his accomplice, Richard Tustian. But Tustian was caught, and he betrayed Hill to the authorities to save himself from prosecution. This was the end for Hill; he was tried at the Old Bailey, found guilty, and sentenced to death. Penalties were harsh because counterfeiting an official stamp not only deprived the government of much-needed revenue but also undermined the authority of the state.

One might have expected the stamp duty to have substantially reduced legal playing card production and thus the potential revenue that could be raised from gaming. In fact, this was not the case: the tax increase was so great that by stamping only 400,000 packs of cards per year – a third of the number that were produced in 1684 – the government still stood to generate eight times more revenue than it had before the imposition of stamp duty.

Policing gaming The financial motives for taxing cards and dice heavily are fairly obvious. But we can also look at this as a story of social control and an attempt to price the poor out of gambling. In the seventeenth and eighteenth centuries, large sections of the population – including servants, labourers and the poor in general – were prohibited by law from playing cards, dice, and other games for money. But England did not have a professional police force at this time, and the laws were enforced by unpaid parish constables and magistrates. In these circumstances, suppressing gaming proved to be difficult.

Specialised gaming houses, which developed in England in the early eighteenth century (but had existed in Venice for much longer), posed a particular problem to the authorities. Organised along the lines of modern casinos, with multiple gaming tables and different levels of management, these gaming houses were seen as propagating and profiting from illegal gaming. It was also believed, often with good reason, that they harboured highwaymen and other criminals; gaming was a way in which stolen ‘bank bills’ and money could be laundered. Organised gaming houses therefore became a focal point for concerns about crime and vice. There were high-profile raids on notorious gaming houses, but these could be dangerous; in 1721, a riot broke out in Covent Garden when constables tried to arrest a group of gamesters. On other occasions, officials and juries were paid off by owners of gaming houses. Most of the time, there was not enough manpower to enforce the anti-gaming laws effectively.

Another approach was needed, and as one government adviser suggested, raising the price of playing cards would stop “the immoderate use of gaming especially amongst the ordinary and meaner sorte of people”. He was not the only one with this viewpoint. In 1710, the members of the Company of Makers of Playing Cards and other associated trade groups petitioned strongly against stamp duty on the grounds that it would cripple their businesses. They pointed out with some alarm that play among the ‘common sort’ would be much reduced, while those ‘who chanced many pounds at a game’ would be able to afford to carry on as normal. Given the difficulties of policing gaming, this may have been exactly the point.

Taking a gamble on tax What can we draw out from this? In the seventeenth and eighteenth centuries gaming houses were illegal, so the government could not tax gaming through a system of licensing. The legislators would have balked at the thought of legalising gaming houses, for, in addition to the issues of crime and vice already mentioned, they did not wish to encourage gaming among the poor. This meant that there was no way of taxing the turnover from gaming.

Although there were instances of French ships illegally selling playing cards off the English coast, eighteenth-century lawmakers did not really face the problem of gaming operators moving offshore. Not so today. The British government’s policy of regulating, rather than restricting, remote gambling has made Britain one of the largest legal European markets for online gambling. Yet many of the companies profiting from the UK market are based in jurisdictions with much more favourable tax regimes, such as Gibraltar. Britain may have shelved its plans for a supercasino earlier this year, but there are already over 140 casinos in the UK, in which some £4.3 billion was exchanged for gaming chips in 2006/07[2]. Charging stamp duty on cards and dice at their point of origin was an eighteenth-century method of making gaming tangible for tax purposes; licensing and taxing ”onshore” casinos may be viewed in a similar way.

The proliferation of elite gaming clubs was largely responsible for late eighteenth century Britain being described as “one vast casino”.[3] But gaming among politicians and aristocrats, while criticised, was not as much of a concern as gaming among the poor. As the magistrate and novelist Henry Fielding put it in 1749, “to prevent Gaming among the lower Sort of People is principally the Business of Society … because they are the most useful Members of the Society; which by such means will lose the benefit of their Labour”. The consequence of gambling for the “Rich and Great”, thought Fielding, was “generally no other than the Exchange of Property from the Hands of a Fool into those of a Sharper, who is, perhaps, the more worthy of the two to enjoy it”.[4] Charging stamp duty on cards and dice did not solve the problem of gaming, but it was an innovative approach by the standards of its time. We may not agree with the motivation of the eighteenth-century legislators, but surely there is a lesson to be learned from their attempt to strike a balance between raising revenue and reducing gaming among those who could least afford to lose their money.

Footnotes

1 All seventeenth- and eighteenth-century gaming statistics are from Nicholas Tosney, ‘Gaming in England, c. 1540-1760’ (PhD thesis, University of York, UK, 2008).
2 The Gambling Commission, ‘Supplementary Information on the Casino Industry’ (Nov. 2007).
3 G. O. Trevelyan, The Early History of Charles James Fox (Kessinger Publishing, 2003 [London, 1881]), p. 77.
4 Henry Fielding, A Charge Delivered to the Grand Jury at the Sessions of the Peace held for the City and Liberty of Westminster, in G.  Lamoine (ed.), Charges to the Grand Jury 1689-1803, Camden Fourth Series, vol. 43 (The Royal Historical Society, 1992), p. 340.

Comments

[evagrius]

"The consequence of gambling for the “Rich and Great”, thought Fielding, was “generally no other than the Exchange of Property from the Hands of a Fool into those of a Sharper, who is, perhaps, the more worthy of the two to enjoy it”.

Sounds familiar.

Sounds like stock market, derivatives, etc; etc;

[robertdfeinman]

Yet another illustration that one can't use a sin tax to simultaneously raise revenue and control behavior.

We are still making the same mistakes in the US, especially with the tobacco tax. If the revenue is to be used to fund health care then the higher tax rate can't also be used to cut consumption. If it does cut consumption where is the revenue stream?

The solution in England would have been to sell the cards through government owned (or managed) shops. The price could then have been set arbitrarily and the revenue kept by the government. If "free enterprise" was still a goal then the card makers could have contracted to make the cards, just not sell them.

This scheme exists in several states and Canadian provinces where liquor sales are restricted to government run outlets. I have no idea whether this restricts consumption, however.

[Incompatible]

article..."...attempt to strike a balance between raising revenue and reducing gaming among those who could least afford to lose their money."

Matthew 6:24..."No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. Ye cannot serve God and mammon."

It has been known for thousands of years that you can't accomplish two incompatible goals simultaneously. Make a choice. Paternalistically nudge the poor into avoiding unproductive activity, or extract resources from them.

[OhNoNotAgain]

"This scheme exists in several states and Canadian provinces where liquor sales are restricted to government run outlets. I have no idea whether this restricts consumption, however."

Hah, you've obviously never been to the Beer Store on the weekends. :-)

[Bruce Webb]

Washington State has a monopoly on hard liquor sales by the bottle but beer and wine are sold everywhere. Recently they have been easing up on sales restrictions but I haven't seen much change either way.

The main effect is to keep prices high by California standards and so too the selection. I wanted to buy a couple of bottles of a speciality holiday liquor as a hostess gift and was told I would have to buy a case and wait a couple of months for delivery. I am by no means a market fundamentalist but this particular niche could use a little injection of the profit motive, I suspect the margins on that particular liquor are pretty spectacular.

What is effecting drinking behavior here is strict enforcement of DUI laws.

As to gambling as an industry it is already heavily taxed particularly with games marketed to the working class like Lotto and Scratch Tickets. Typically they only pay out 50% in prizes. True they have heavy marketing costs but you still end up with a pretty heavy, quite regressive tax.

In general gambling has expanded like crazy here over the last decade. Previously you had a Tribe running a small casino tucked away on their reservation or a small card room associated with a tavern. Now we have the bigger tribes building Casino/Resort hotels while cardrooms have been allowed to expand into mini-casinos. I go gambling every year or so and don't have moral issues, but I do see working people putting their money to use in really inefficient ways all encouraged by the State and with more and more opportunities for the State to simply extract resources.
____________________
As for the cigarette tax, I am not sure it results in the quasi-paradox pointed out by RDF and Incompatable. You would have to quantify the direct savings to the State in terms of lowered lifetime health care costs and fewer house fires. Certainly my State has taken a path of strict restrictions on indoor smoking along with sharply increased taxes. Currently the only public places with indoor smoking are the Tribal Casinos and that only because they don't come under State jurisdiction. The State didn't seem to have any real concern about losing that income by banning smoking in bars and private casinos a couple of years back, I suspect somebody somewhere has done the math.

[sk]

I'm very surprised that horse racing and the associated betting on it in the UK wasn't mentioned - its been going for a while !
http://sportsvl.com/rest/horse%20racing%20UK.htm

I worked as a bartender to put myself through University in the '70s and most city working-class pubs I worked in had a "betting shop" next door to it; by law they had to ensure that people couldn't peer inside so the windows were inevitably whitewashed - by law people couldn't fill in betting slips in the pub but of course the law was completely disregarded.

Off-course betting is even nationalized in the UK - in the form of the Tote - http://en.wikipedia.org/wiki/The_Tote

Once one incorporates this ( and greyhound racing, another working class betting bastion ) into the UK gambling story and history then the issues and plotline are quite different than the ones you've highlighted - IMO anyway.

-K

[kthomas]

Gambling is the worst type of sin. Chronic gamblers make narcotics abusers look like regular folks.

[Jay]

"Gambling is the worst type of sin. Chronic gamblers make narcotics abusers look like regular folks."

Nothing like nanny staters wanting to stop two consenting adults from engaging in voluntary transactions. Remind me who the "pro-choice" crowd is?

[nodakdude]

If two states really wanted to discourage gambling (smoking, drinking, etc.) without becoming addicted to the revenue, they could agree to tax it and send all the revenue to each other.

Yeah, I wouldn't bet on it either.

[kthomas]

Jay, sorry, I am confused by your response. BTW, I am Pro Choice. "nanny staters"? You'll have to dumb it down for me, sir. Is that someone who states "nanny"?

Gambling is a vice, of the worst kind. If it were my decision, it would be legal in 2 places only: Vegas and Atlantic City. Winnigs would be taxed just like income.

I would remove ALL of the casinos from the reservations and I would remove any trace of these ridiculous Lotterys.

[robertdfeinman]

The state lotteries have also worked perversely. As people have become jaded the lotteries have been forced into a number of schemes to generate traffic. The most obvious has been the creation of the mega-lotteries which pay out 100's of millions to a single winner.

They have also increased advertising and promotion and (I believe the amount given to the shop owners). Since all the lotteries are run by outside contractors they have also started paying them more as well. So the "take" is frequently less than 50%.

The worst of it is that as states have gotten used to the idea that education would be partially funded by lotteries the legislatures have been less interested in using tax revenue increases. So instead of the lottery providing an add on to education it has become a substitute for public funding.

Perhaps there could be some scheme where sin taxes weren't dedicated to a "good cause" and thus the paradoxes could be reduced, but I can't envision what this would be. It is necessary to promote the idea of the good cause in order to gain public acceptance for the tax in the first place.

[Jay]

kthomas:

What I'm pointing out is the hypocrisy that some people support abortion on the grounds that a consenting woman and a doctor should be free to do as they please but two consenting 'gamblers' are not free to do as they please. Guess it depends on what your religion permits and what it forbids.

[kthomas]

Thany you, Jay. Well-said.

I have no religion, though I believe in a God. (I've actually met her a couple of times over tea, she's quite charming.)

Gambling is something I would definitley eliminate. Believe it.

[Jay]

I should mention I use religion openly (not limited to the structural definition, i.e. catholic/protestant/muslim/etc. churches). I apply it to any belief that is without a fundamental logically sound and objective backing.

That is nice that it is your opinion that gambling should be eliminated, but I'm sure I can find someone that believes something you desire greatly should be eliminated.

[kthomas]

The slope is ever slippery, Jay.

Which is why I would allow gambling in Vegas and Atlantic City. Even hopeless gamblers should have a place to congregate legally.

I go right I go left, but am usually found in the middle.

[zero]

kthomas - you are definitely in the minority on this one.

Society is sure changing regarding gambling - it used to be a marginal activity at the margins of society. Now it is a means of funding everything to economic development.

Close the factory - no problem, lets build a casino! Flip through cable TV and there are numerous poker games.

Face it - gambling has been normalized and is now just another activity for the whole family, like swimming.

Thankfully brawling is still a marginal activity, but maybe UFC can change this?

[Mark]

"Taking a gamble on tax What can we draw out from this? In the seventeenth and eighteenth centuries gaming houses were illegal, so the government could not tax gaming through a system of licensing. The legislators would have balked at the thought of legalising gaming houses, for, in addition to the issues of crime and vice already mentioned, they did not wish to encourage gaming among the poor. This meant that there was no way of taxing the turnover from gaming."

interesting gambling related information.
Thank you.

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