Opinion

David Cay Johnston

Macau big for casinos, taxman

By David Cay Johnston
August 16, 2011

By David Cay Johnston
The author is a Reuters columnist. The opinions expressed are his own.

The Lisboa, the oldest casino in this thriving gambling city, features a polished black marble floor flecked with what looks like glittering gold. While all gamblers eventually find only fool’s gold, like the glittering pyrite in the marble floor, government is mining real gold from the casinos here.

Macau, a special administrative region of China, is raking in 8 billion patacas (US$1 billion) a month this year in casino taxes.

That is up by almost half from last year and likely to grow much more in the next few years as Chinese with wads of renminbi search for excitement, glamour, commercial sex and a brief escape from the rigors of life back home, not to mention the hope of striking it rich at the tables.

The casinos generate so much tax revenue that the Macau special administrative region cannot spend it all, anomalous proof that government is not an unlimited user of money.

Last year the Macau government took in more than twice what it spent. The budget for 2011 anticipates the government spending more than three-quarters of its revenue as the 22,600 civil servants — every 25th resident of this city of more than half a million — get their first across-the-board pay increase since 2008.

These huge tax surpluses free Beijing from having to spend any money in Macau, the only place under Chinese rule where casinos are legal.

The casino taxes can be seen also as an indirect way for Beijing to capture some of the vast untaxed income in China, where only 3 percent of workers pay income tax and it is universally believed that many fortunes made in business escape the nascent Chinese tax enforcement system.

CASH FLOWS IN
Of course it has not gone unnoticed by Beijing, or for that matter Washington, that so much money flows into Macau across the bustling border crossings at the mainland, on the jetfoils and ferries from Hong Kong and in the jumbo jets landing at the airport. Spies are said to lurk everywhere in Macau, as ubiquitous as the working girls who gather legally at the casino bars.

The Chinese spies are looking for both high-rolling government officials, a sure sign of corruption given Chinese civil service salaries, and for people who might let state secrets slip. The Americans scan for people who might hold valuable military and other secrets and who, having put themselves in vulnerable positions, can be coaxed into selling what they know.

Everywhere around the edges are criminal gangs that lend money to gamblers, encouraged by laws that make casino markers, as credit slips are known, collectable in Macau and Hong Kong, but not the Chinese mainland.

The big markers are held by associates of junket organizers who, workers and customers at the casinos say, are willing now and then to have a customer just disappear because it helps to encourage repayment by the rest of the borrowers.

For those unwilling to leave China with renminbi stuffed into men’s packs (or murses, as they are known in America) there are jewelry shops that take Chinese plastic and hand over not diamonds or watches, but cash with which to gamble, a subtle form of money laundering.

For those who wish more discretion, the Las Vegas Sands — operator of the Venetian, Sands and Four Seasons casinos — operates seven private jets, some of which fly back and forth to the company’s Marina Bay casino in Singapore. Going to Singapore means gambling where Macau, and thus Chinese, officials lack access to casino videotapes.

PROFITABLE DESPITE HIGH TAXES
The six casino companies pay in taxes almost 40 percent of what their players lose, compared to 5 to 15 percent in Singapore, 7.75 percent in Las Vegas and 9 percent in Atlantic City. The American casinos also pay corporate income tax.

Despite Macau’s high taxes, its casinos are immensely profitable.

Partly that is because gamblers pay high prices in the form of the vigorish charged at the baccarat tables. Baccarat accounts for close to 90 percent of the money that Macau players lose.

In Atlantic City the vig, as it’s called, is under 2 percent. In Macau it is almost 3 percent. So Macau players pay about 50 percent more vig because of the higher casino tax.

Almost half the world’s people live within a five-hour flight to Macau, ensuring a steady torrent of players and tax revenues even when the long economic boom in China slows, as it must someday.

Steve Wynn’s Wynn Resorts runs casinos in Macau and Las Vegas. Last year Macau generated 69 percent of company profits and 77 percent of cash flow, a measure of how China prospers while America struggles.

Cash flow from the Las Vegas Sands’ Macau casinos last year was four times what its Las Vegas business generated. Its Macau cash flow, as measured by the company, grew 47.5 percent from $842 million in 2009 to $1,242 million last year. And its new Sands Marina in Singapore, although open only eight months, brought another $642 million of cash flow.

The Macau Venetian has more than 550,000 square feet (50,000 square meters) of gambling floor, making it 3.5 times larger than the Trump Taj Mahal in Atlantic City and infinitely more profitable.
Across the street from the Venetian, new hotel towers are rising for Conrad, Sheraton, Holiday Inn and perhaps other hotels as the number of Chinese with money to play with grows along with the tax revenues generated by the money they lose.

There are many lessons here for America. One is that higher taxes do not necessarily mean less business.  (Editing by Howard Goller)

Comments
9 comments so far | RSS Comments RSS

Come on … this is the only place in China that you can go to gamble. Taxing this one place into the ground is not the same as taxing a whole country. And don’t we already have some hefty sin taxes?

Posted by Byanyothername | Report as abusive
 

If the strip in Vegas were the only place in the US to gamble it would be always packed.

Taxes in the US r too high, no lesson to learn here.

It is just a developing nation opening up to the gambling thrill (and losses), we have been there, done that.

Posted by robb1 | Report as abusive
 

answering ginchinchili: Taxes r too high here in the US simply because our economy cannot afford higher taxes, at least at the present time.

I agree with u that our government spend (spent) too much on wars etc. without realizing how much debt it would generate.

But, besides tax loopholes that big US corporations enjoy, the typical small business here in California is taxed @ ~43%.

Do u know that in Singapore the flat corporate tax rate is, I think, ~12%?

How can we compete on a global scale?

Not even Vegas can compete anymore, until we re-structure our fiscal system and make good decisions how to spend our $.

That’s the real lesson to learn.

Posted by robb1 | Report as abusive
 

I guess the connection between Macau and comment by ‘ginchinchili’ is that the bizarrely stupid behavior of gamblers playing against a vig in places like Macau can be matched by the bizarrely stupid behavior of the US Congress.

It’s true that many things in the U.S. Internal Revenue Code are bizarrely stupid if you think about it. David Cay Johnston has exposed much of this.

We (USA) also have to put up with many bizarrely stupid things in the Federal budget, and one of those is that the wars since 2001 have been declared “off budget”. So all the recent disastrous budget talky-talky was based on explicitly (by law!) inaccurate or even meaningless numbers.

We also can note (although very few do) that the Bush administration found that fraud in Iraq and Afghanistan military operations could not be prosecuted, since those were NOT wars (declared by Congress pursuant to Art. I, § 8, of the Constitution). On the other hand, when it came to Congress “patriotically” and unquestioningly appropriating all the funds that the Bush administration requested for those wars, then they were WARS (sacred causes) after all – even though never declared by Congress (which has delegated that power of Congress to the Executive under “War Powers” legislation).

It’s like Alice (thinking people) and Humpty Dumpty (Congress):

“When I use a word,’ Humpty Dumpty said in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.’

’The question is,’ said Alice, ‘whether you can make words mean so many different things.’

’The question is,’ said Humpty Dumpty, ‘which is to be master — that’s all.”

— Lewis Carroll (Through The Looking Glass)

http://www.goodreads.com/author/quotes/8 164.Lewis_Carroll

Yes, if you want to see “bizarrely stupid” in this postmodern era – take a good look at SuperAmerica!

Posted by BornInUSA | Report as abusive
 

ginchinchili: well written analysis!

I realize our fiscal pressure is not “so bad” compared to “some others” and I recognize how the two, so called “wars”, degraded our finances. But in better times we were able to sustain much worse expenses.

One of the big corporate loopholes we should eliminate is outsourcing, it kills domestic US jobs. If we would discourage that, limiting its tax deduction, it would create domestic jobs and would not be so dramatic as resorting to import tariffs. Outsourcing is also mainly used by big corporations, while small business would indeed benefit simply from a lower statutory corporate tax.

How r we going to pay now?

De-valuating our currency hoping for inflation is the ongoing strategy.

Aiming at a new economic growth to generate more tax revenues (aka jobs) should be next in the agenda.

I am simply afraid we cannot afford to raise taxes now and still hope for a recovery, and no, I am not in favor of the Republicans way of spending.

Posted by robb1 | Report as abusive
 

@D3V: true that outsourcing is “THE biggest source of profit” especially for big US companies. If we would just “discourage that” with a proportionate tax, not just completely “take away”, it would help creating more domestic jobs. It is a form of taxation that would directly balance the higher cost of our US workforce against the developing countries. Also, most of the times, the profit of outsourcing stays abroad and is taxed at very low rates, while domestic job creation and profits are taxed at standard domestic rates, so I think, we would generate perhaps the same amount of tax revenues adding local jobs.

Posted by robb1 | Report as abusive
 

The American multi-nationals need to do their part to stabalize our economy and debt.
I see two options.
They can provide jobs for Americans so they can pay tax, or the corporation needs to start paying on the profits they made from outsourcing the jobs.
The only type of bussiness that is overtaxed is the little guy who doesn’t have a building full of tax lawyers.
In my opinion we should tax based on where its made and where its sold. If you make it here with American labor and export it there would be NO corporate tax.
If you manufacuture it outside the U.S. with foreign labor and import and sell in the U.S. you should pay the highest tax rate.

Posted by jjd | Report as abusive
 

The gambling industry creates more social ills/problems than you could ever tax! Raise taxes big time on gambling, porn and alcohol-the industries we could never tax enough!

Posted by DrJJJJ | Report as abusive
 

It comes down to this:

Are U.S. domestic producers to continue to be forced through preferential tax policies to subsidize their foreign competition, or not?

Unfortunately, that question can effectively be answered only by the US Congress, which does a much better job of representing MNCs than it does representing the best interests of the most productive citizens.

This point has been well established in published work of David Cay Johnston.

Posted by BornInUSA | Report as abusive
 

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