Looting in Las Vegas

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The
common thief has the decency to leave you alone after he takes your
money. But, society's biggest thief, government, steals money, calling
it taxation, and then lurks in the shadows to tell its victims what
to do, calling it regulation. And, in Las Vegas the government goes
one step further, it taxes, it regulates and then competes head
to head with private enterprise in the city's largest industry,
tourism.

The
Las Vegas Convention and Visitors Authority (LVCVA) was born in
the 1950's when city and county politicians decided that a convention
center was needed to put "heads in beds" during slack
tourist months. In April of 1959 a 6,300 seat rotunda along with
90,000 square feet of adjoining exhibit hall space was completed.
In the 1980's the convention center was expanded to 1.9 million
square feet and just this spring, another 1.3 million square foot
addition was completed. The new addition is $30 million over budget,
and counting, with many subcontractors still owed money for their
work on the project.

LVCVA
proponents argue that the state agency is needed to boost tourism
and fill local hotel rooms, and besides, according to LVCVA spokesman
Rob Powers, "[i]n the 45-year history of the convention authority,
the people of Las Vegas have never paid one dime, or one nickel
or one penny to support the convention authority." "Our
operations are supported by room taxes paid by visitors to Las Vegas."

Indeed,
a large portion of the 9% room tax goes to fund the LVCVA. Over
half of the taxes collected go to the authority, with the county,
the school district and the state dividing up the rest of the booty.
But the question is who paid the tax, the tourists or the hotels?

Although
Mr. Powers is positive that tourists pay this tax, he's wrong. It
is the hotels and thus the people of Las Vegas that pay, and it's
not just, nickels, dimes and pennies. Last year, almost $136 million
was collected.

The
question with a room tax or any partial excise tax (sales tax on
specific commodity) is whether the tax can be "shifted"
from the seller to the buyer or from seller to supplier. In the
first instance, this "shifting" will occur if the taxpayer
or seller can raise his selling price to cover the amount of the
tax. In the later instance, the seller can "shift" the
tax if he can lower his supply costs to compensate for the tax,
thus "shifting" the tax to another seller.

But
as economist Murray Rothbard wrote in Power
& Market
, "No tax can be shifted forward.
In other words, no tax can be shifted from seller to buyer and on
to the ultimate consumer." Most people believe that tourists
pay the room tax because they pay the tax at the time they pay for
their room, and that the tax is merely another increase in the cost
of production (like labor or supplies) and is just passed on to
tourists as an increase in room rates. But, room rates are not determined
by the costs to have room nights available. Daily room rates are
determined by the demand schedule for those rooms and the amount
of rooms available. The room tax does not affect the demand schedule.
As Rothbard points out, "[t]he selling price is set by any
firm at the maximum net revenue point, and any higher price, given
the demand schedule, will simply decrease net revenue. A tax, therefore,
cannot be passed on to the consumer."

Each room night is unique. Although a hotel room may be the same,
the demand for that room will vary depending upon the date and the
availability of other similar rooms. That's why room nights are
much higher priced during the COMDEX convention, which brings 200,000
computer conventioneers to town, than on an average 100-degree August
night with few conventioneers in town. Absent any new hotel rooms
being built, the number of hotel rooms stays the same the year round.
However, the demand fluctuates widely, and room rates reflect these
demand fluctuations.

If
the hotels could have passed along the room tax in the form of higher
room rates they would have raised rates already without the room
tax. Hotels don't rent their rooms for the lowest prices they can,
if the demand for rooms allows for rate increases hoteliers raise
their prices.

An
excise tax, Rothbard summarizes, "cannot be considered a tax
on consumption in the sense that the tax is shifted to consumers.
The excise tax is also a tax on incomes, except that in this
case the effect is not general because the impact falls most heavily
on the factors specific to the taxed industry."

So
instead of hotel corporations and entrepreneurs collecting $136
million for their shareholders, suppliers, lenders, employees and
marketing they were forced to hand that money over to the LVCVA.
The convention authority then uses the money to operate the 3.2
million square foot convention center at a continuing loss while
private industry competitors such as the Sands Expo Center operate
at a profit. Until the LVCVA's recent expansion, the convention
center and Sands operated similar sized facilities. But the Sands,
not having a perpetual stream of tax loot gushing in, operates their
facility with 50 employees, while the convention center employs
over four times that number.

Not
pressed to operate profitably to continue, the convention authority
leases its space for 25 cents per usable square foot per convention
day and zero cents per day for set-up days up to the number of convention
days leased. These rates lastly undercut private operator Sands
Expo, who charges 35 cents per usable square foot per convention
day and seventeen and one-half cents for set-up days.

The
Sands Expo's sister property, the 3,036-room Venetian, generates
some of the highest rooms rates in the city, well over $200 per
room night. And thus, the LVCVA takes $30,000 every day from
the Venetian and then turns around and competes with the Sands Expo,
using the Venetian's tax dollars to subsidize LVCVA convention center
rates.

And
forgetting its original mission of attracting new business to Las
Vegas, the LVCVA uses its tax-subsidized rates to lease more space
to existing conventions (Comdex and National Association of Broadcasters,
for example) at the expense of private competitors, instead of marketing
new convention business.

The
marketing of Las Vegas hotels and operating convention space are
not activities that government should be involved in. If the hotels
could keep the millions stolen from them yearly ($136 million in
2001), no doubt they could spend the money putting "heads in
beds" much more effectively than a bloated government agency
can. In turn, the convention center property should be sold to the
highest bidder, with the money generated after paying creditors
going to the hotels whose tax dollars funded its construction.

June
6, 2002

Doug
French [send him mail]
is a banker in Henderson, Nevada.

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