What state governments can learn from Vegas casinos

It’s well known that casinos in Las Vegas treat their wealthiest high rollers, often referred to as “whales,” quite well. In order to get the whales to stay and gamble at their locations, the casinos offer free rooms, meals, and VIP treatment.

Casinos compete with each other using generosity and welcoming treatment to attract the whales and keep them there as long as possible.

Why would they offer so many freebies to wealthy customers who could easily afford to pay for them?

It’s not pure generosity driving this custom, but math.

The casinos calculate that the cost of the giveaways is a small investment in acquiring and retaining the whales’ business, which typically results in the casino receiving much more in gambling losses over time compared with what they give away in comps.

The casinos see the value generated by the whales and invest in treating them like VIPs to attract that value.

Contrast the casinos’ approach with the way some state governments are treating their high-wealth individuals.

For example, California will place on this November’s ballot a “billionaires tax.” If passed, it would impose a “one-time” tax of 5% of the wealth of the state’s billionaires.

Not waiting for the election, several of California’s whales are already moving to other states, bringing their billions with them.

The state of Washington, which up until now did not have a state income tax, just approved a millionaires tax, which would place a 9.9% tax rate on household income exceeding a million dollars. All other income earners will remain untaxed, for now.

The new tax doesn’t take effect until 2028, but reports have already surfaced that Starbucks founder Howard Schultz is moving to Florida, which has no income tax. Speculation is that many more wealthy Washingtonians — including business owners — will follow his exodus.

Remember when, in 2022, New York Governor Kathy Hochul openly declared in a campaign rally that New Yorkers who disagree with her politically should “jump on a bus and head down to Florida where you belong”?

New York state has experimented with millionaires taxes several times over the past two decades, with the latest taking effect in 2021. From 2020 to 2024, New York’s population fell by nearly a quarter of a million people.

Fast forward to today, Hochul is singing a very different tune.

“But maybe the first step should be to go down to Palm Beach and see who we can bring back home because our tax base has been eroded,” she said recently. Hochul was specific: “I need people who are high-net-worth to support the generous social programs that we want to have in our state.”

But she did not offer any reason — like tax relief — for wealthy people to return.

People, especially those high-net-worth whales, will migrate to where they are welcomed, just as in the Vegas casinos. A Tax Foundation analysis of US Census Bureau data concluded that “Americans are continuing to leave high-tax, high-cost-of-living states in favor of lower-tax, lower-cost alternatives.”

Wealthier people have the resources to move to other locales more readily. They are not stationary targets, making soak-the-rich tax schemes poor ideas.

So why do these state governments want to treat them poorly? Placing punitive taxes on the most productive, often villainizing the wealthy, is the opposite of how Vegas casinos treat their whales.

The casinos offer a welcoming embrace, knowing it will pay off in their bottom lines. State governments often treat their whales as targets for scorn and punishment. But states must also compete for wealthy investors and job creators, and as Hochul discovered, losing them to other states is harmful to their bottom lines.

This doesn’t imply lavishing corporate incentives on these job creators, of course, as picking winners and losers in the economy is notoriously difficult, not like the predictable gaming odds, which always eventually break in the casinos favor. Creating economic climates that are welcoming overall is more than enough.

A state should recognize that being more welcoming to high-net-worth individuals will pay off both for the state’s economy and in tax revenue. Avoiding punitive taxes and stifling regulations will signal to the whales that they are welcome in the state. While keeping tax rates low on high-income earners may seem like sacrificing tax revenue in the short term, it makes sense over the long term.

Attracting and keeping their billions in income and wealth expands the state’s tax base, and the increase in jobs and economic activity that results from keeping successful entrepreneurs further bolsters tax revenue. Much more importantly, it also results in more jobs and opportunities for more of your citizens.

The old saying in Vegas is that “the house always wins.” States that want to win could learn a thing or two from casinos about how to treat their whales.

“What state governments can learn from Vegas casinos” was originally published on www.carolinajournal.com.