Legal Sports Betting One Step Closer in Ohio

The bill’s sponsors, Representatives Dave Greenspan (R) and Brigid Kelly (D), argue that legalizing sports betting could raise some much needed revenue in light of the coronavirus’ impact on Ohio’s tax collections.

The Ohio Senate has its own bill to legalize sports betting, SB111, which would impose a 6.25 percent tax on adjusted revenue and allocate the money to the general fund. This tax is estimated to raise $15 million in fiscal year 2021. (The forecast was made in 2019, and revenue is unlikely to materialize in FY 2021.) 

The House bill and the Senate bill both have relatively low and competitive tax rates. Neighboring states West Virginia (10 percent), Indiana (9.5 percent), and Michigan (8.4 percent) have comparable rates. Pennsylvania is the only neighbor with a significantly higher rate, at 34 percent.

Aside from the different tax rates in the two bills, the major discussion in Ohio centers around which agency would have authority over the new industry. The House bill appoints the Lottery Commission while the Senate bill appoints the Casino Commission. Governor Mike DeWine (R) supports the Senate’s proposal to delegate authority over sports betting to the Casino Commission.

This discussion is connected to revenue appropriation because revenue allocated to the Lottery Profits Education Fund must, according to Ohio’s Constitution, be spent solely to support elementary, secondary, vocational, and special education programs. On the other hand, if the system is administered by the Casino Commission, revenue can be appropriated to the general fund. However, neither of these proposals are particularly sound tax policy. As a rule of thumb, excise or “sin” taxes generally do not generate stable revenue and should not be relied on to fund ongoing government programs.

Rather, revenue from narrow excise taxes should only be levied when appropriate to capture some externality or to create a “user pays” system. When it comes to sports betting, that would be to recover the societal cost related to wagering (for instance, gambling addiction treatment) and to fund the operation of the system.

States legalizing sports betting in the hopes of balancing their budgets might get a bump in revenue, but it is not a long-term solution to fix budget woes, including those caused by the coronavirus pandemic. To put the issue into perspective, Gov. DeWine has announced budget cuts of $775 million—and raising between $15 million and $20 million in new revenue is no cure-all.

States should rely on broad-based, low-rate taxes instead. Gambling can be part of that revenue picture—but states should not bet the house on it.