States Bet Big on Sports Gambling. Is It Paying Off?

Plus - Handing out cash during the next recession

States Bet Big on Sports Gambling. Is It Paying Off?

It’s been just over a year since the Supreme Court opened the door for states to allow sports betting. Anticipating a budgetary boost from sports betting tax revenues, seven states rushed through that door to join Nevada, where sports gambling was already legal: Delaware, Mississippi, New Mexico, New Jersey, Pennsylvania, Rhode Island and West Virginia. All had passed legislation approving sports betting before the high court’s ruling. Several others are set to follow.

Has the bet paid off? Nearly $8 billion has been legally wagered since the Supreme Court’s decision, including $3 billion in the new markets, according to the American Gaming Association.

But a new report published this week by Richard C. Auxier of the Tax Policy Center finds that just over half the states that now allow sports betting are in line to meet their tax revenue projections. Some states — most notably New Jersey, which allows online wagers — are set to far exceed their projections, while others, like Rhode Island, are falling well short. Officials say the shortfalls are likely the result of limited online gambling options and low consumer awareness of legal sports betting in those states, according to Bloomberg Tax.

Auxier’s report also notes that none of the state revenue projections for sports gambling revenue came close to representing 1% of annual general revenue. “States can collect millions of dollars in tax revenue from legal sports betting, but that tax revenue will always be relatively small and volatile,” it says. “As such, politicians should not overpromise what the revenue will do for state budgets, and legislators absolutely should not make critical spending programs dependent on that revenue.”

That note of caution likely won’t do much to keep states from betting on sports gambling. David Forman, the senior director of research at the American Gaming Association, told Bloomberg that 18 to 20 states in total could have sports betting in place a year from now.

Here’s where each state stands on legal sports betting:

Congressional Leaders to Start Budget Talks with White House Next Week: Report

Top congressional leaders have agreed to begin negotiations on a two-year deal to lift spending caps and will meet with White House officials next week to formally start the talks, Politico’s John Bresnahan and Sarah Ferris report.

They add that President Trump supports the discussions, even though acting White House Chief of Staff Mick Mulvaney and acting Office of Management and Budget Director Russell Vought argued against pursuing another two-year deal, instead urging a one-year extension of current spending levels.

Trump reportedly decided to back the two-year talks after “heavy lobbying” from Senate Majority Leader Mitch McConnell (R-KY) and House Minority Leader Kevin McCarthy (R-CA), who warned that failure to reach a deal could undercut the military spending increases enacted over the last couple of years. Without a deal to raise the spending caps set to take effect, Pentagon funding would be cut by $71 billion from 2019 levels. Non-defense discretionary spending, meanwhile, could be cut by $55 billion.

"It’s still too early to speculate on what the outcome of these discussions will be, but as deficit spending continues to drive up our national debt, the administration will continue to push for fiscal responsibility,” a White House official told Politico.

Is It Time to Put Fiscal Policy on Autopilot?

Some federal programs such as unemployment benefits and food stamps work as automatic stabilizers in a weakening economy, making recessions less severe by boosting incomes and consumption for millions of unemployed and underemployed workers. But some of the most powerful tools the government has its disposal to fight a recession, including spending levels and tax rates, are subject to political constraints that can lead to less than optimal fiscal policy in the midst of a crisis. As a result, a recession may last longer than it would have with a stronger federal response.

Two think tanks, the Washington Center for Equitable Growth and the Brookings Institution’s Hamilton Project, asked a group of scholars to think about ways the government could turn more of its fiscal tools into automatic stabilizers in order to “help the next recovery start faster, make job creation stronger, and restore confidence to businesses and households so they resume investing and spending again.”

Their ideas, which were published this week at the Hamilton Project, include reforming some existing programs as well as creating new ones. Some highlights:

• Automatic infrastructure investment: Andrew Haughwout, an economist at the Federal Reserve Bank of New York, proposes to create state-level infrastructure spending plans that are automatically triggered when the economy weakens. Federal infrastructure grants would rise if the unemployment rate climbs more than half a percentage point above the recent average, and then contract as the economy improves. With spending plans already in place, politicians could avoid the difficult debate over which “shovel-ready” projects to fund, speeding up the funding process for targeted and approved projects. (For more details, see Haughwout’s paper here.)

• Automatic direct payments: Claudia Sahm, an economist at the Federal Reserve Board, proposes to provide individuals with cash as the unemployment rate rises, with the value of total payments set equal to 0.7% of GDP. “Research shows that stimulus payments that were broadly disbursed on an ad hoc (or discretionary) basis in the 2001 and 2008–9 recessions raised consumer spending and helped counteract weak demand,” Sahm said. “Making the payments automatic by tying their disbursement to recent changes in the unemployment rate would ensure that the stimulus reaches the economy as quickly as possible.” (See Sahm’s paper here.)

• A more robust unemployment system: Gabriel Chodorow-Reich of Harvard University and John Coglianese of the Federal Reserve Board propose to boost the stimulus provided by unemployment insurance by making several tweaks to the current system, including full federal financing and automatic extensions triggered by economic conditions. “Together with other policy reforms to automatic stabilizers, these proposed changes to the UI system could help to mitigate future recessions,” they wrote. (See their full paper here.)

For the full range of proposals, see “Recession Ready: Fiscal Policies to Stabilize the American Economy” at the Hamilton Project.

Tweets of the Day

Bloomberg’s Sahil Kapur breaks down some differences between Democrats and Republicans over protections for people with pre-existing medical conditions. The whole thread is worth a read.

Your Prize for Making It Through the Week

We’re going both highbrow and lowbrow today.

I. M. Pei, the architect behind some of the world’s most iconic modern buildings, died this week at the age of 102. The New York Times offers a look at six of his most important buildings, while Bloomberg has a gorgeous gallery of 15 images.

And at the other end of the cultural spectrum, another icon passed away this week: Grumpy Cat, the furry feline that launched well over a thousand memes, died at age 7. At CNN, Jeff Yang explains why the internet’s obsession with cats will never die. And The New York Times detailed Grumpy Cat’s vast business empire:

“Her likeness appeared on nearly 900 items in an official shop, she made a television advertisement for ‘Honey Nut Cheerios,’ and she became the official ‘spokescat’ of Friskies, a cat food brand. The cat starred in a Lifetime Christmas movie, ‘Grumpy Cat’s Worst Christmas Ever,’ she was on the cover of New York Magazine, and her book hit No. 7 on The New York Times’s advice, how-to and miscellaneous best-seller list.”

Send your tips and feedback to yrosenberg@thefiscaltimes.com. Follow us on Twitter: @yuvalrosenberg, @mdrainey and @TheFiscalTimes. And have a great weekend!

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