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The G-String Tax

Mises Daily: Monday, May 01, 2006 by

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Money is said to be the mother's milk of politics. And for Las Vegas politicians the local strip club industry has provided a rich vein of cash that has been voraciously mined by politicians at all levels. Ironically, while the G-Sting political corruption trials ongoing testimony provided an avalanche of sordid details about local commissioners each day, eight local strip club operators filed a lawsuit against the Nevada Department of Taxation, the Nevada Tax Commission and the Nevada State Board of Examiners over an entertainment tax passed by the 2003 Legislature and modified two years later. State legislators are robbing club owners with taxes while local politicians have been heavy-handedly shaking down at least one club owner for bribes.

Despite the Nevada economy hitting on all cylinders and state government raking in record revenues from sales, gaming and property taxes: Senator (now Gubernatorial candidate) and UNLV professor Dina Titus championed the passage of an entertainment tax, specifically targeting the bump-and-grind business.

The tax requires adult clubs to pay up to 10 percent of ticket sales or admissions as a tax. Pete Eliades, who owns two of the clubs that joined in the lawsuit, Olympic Garden and Sapphire, says the tax costs him about $150,000 a month for both clubs.

What adds insult to injury is that most cover charges collected are immediately paid out to the cab drivers that ferry patrons to the gentlemen's cabarets. This practice has been ruled against the law, but the law is frequently broken, as clubs located off the Las Vegas Strip are dependent on cab drivers to deliver them customers.

"The rationale is that you can justify a tax when an industry creates a special burden," says the greedy Titus. "And the adult industry certainly does that."

Titus, who appropriately teaches political science, believes the tax is justified because gentlemen's cabarets don't pay payroll taxes or contribute to workers compensation. Dancers are not employees; in fact, they pay club owners to ply their trade. Thus they receive no health insurance benefits, which troubles Titus, who contends that nude and topless dance clubs create an additional burden for agencies like social services and law enforcement.

Of course this is all nonsense. Police don't make any more calls to strip clubs than any other kind of business. As an R-J editorial points out; "If 'numbers of police calls' justified extra taxes, the first surcharges should surely go to roadhouse taverns and apartment complexes that rent to young, unmarried, alcoholic couples. Right?"

Most dancers probably don't have health insurance. Who cares? These women are primarily young and healthy; otherwise they couldn't make a living working for hours on end in the nearly all-together, while balancing themselves atop eight-inch heels. I doubt the good Senator is in as good of shape.

Plus, it is hard to imagine that local hospital and social service office parking lots will ever be clogged with the BMWs and Jags that the few local dancers drive. The fact is most of these women live somewhere else, flying in for weekend or weeklong stints to make as much cash as possible after which they head home to live unassuming lives of students or nurses or whatever.

As for the demand side, out-of-town conventioneers have not been lining up at the welfare office because they blew their money at strip clubs.

Besides, dancers in Las Vegas are forced to buy business licenses and obtain work cards. Government takes plenty from them already, and club owners pay a blizzard of taxes.

The local ACLU intends to file a court brief supporting the complaint against the live entertainment tax. But instead of making the principled argument that taxation of any kind violates property rights, from the ACLU's perspective: "This is about a principle, and that principle is free speech," said Gary Peck, executive director of the Nevada civil liberties group.

While the state of Nevada defends taking tax money from strip club operators, former Clark County Commissioners Mary Kincaid-Chauncey and Dario Herrera are on trial after being indicted in 2003 on charges of accepting cash bribes from strip club owner Mike Galardi in exchange for votes that favored his strip club empire. Kincaid-Chauncey and Herrera are also accused of depriving the public of honest services by voting on Galardi's issues before the commission without disclosing their relationship with him.

Former Commissioners Erin Kenny and Lance Malone, who later worked for Galardi, were also indicted. Galardi and Kenny have pleaded guilty and are cooperating with the government. Malone stands trial later this year.

Galardi has testified that he gave thousands of dollars to commissioners, judges and any other politicians that had their hands out. Cops, firemen, deputy DA's, as well as politicians received free booze, lap dances and other back room favors. Ms. Kenny has testified that she accepted hundreds of thousands of dollars in bribes.

Former Galardi general manager and high school buddy, Rich Buonantony testified that Galardi was "a human ATM machine" for local politicians. They came by often and demanded payment. Buonantony says that the payments were "business as usual" and that he and Galardi felt that it was "the way things were done in Vegas."

"It was one of those things where you gave money, and you were left alone," Buonantony said on a local TV program recently. "You gave money to make sure your business was going to be taken care of. If you're making $14 or $15 million a year and it costs you $500,000 to insure that $14 million, what are you going to do?"

The ex-general manager stressed that when politicians can arbitrarily change laws that impact their business and investment, a business owner is left with no choice but to pay up. "But, who's going to feel sorry for the strip club owner who says, 'Oh my God. I'm being extorted,'" Buonantony quipped.

As economist Pierre Lemieux points out in his Mises Institute article "In Defense of Bribery," when the government acts against the public interest by favoring one group over another group with arbitrary laws prohibiting free exchange, "the economics of bribes suggests that they are not harmful to the general welfare," and that the liberty of offering bribes "at least allows the harmed subjects to try and minimize their harm. Public bribes are a safety valve."

Not only did Galardi have to shell out huge dollars to keep politicians off his back, he and his staff had to cater to their nonsense when they came in one of his clubs. As an example, one local former city councilman arrived one night with an entourage, and commanded: "Get us a round of drinks. Get us some tables. Get us some pizzas. Give me your two nastiest whores and put it on Mike Galardi's tab," remembers Buonantony. When he complained to his boss, Galardi told his manager: "You get out there and you do whatever he says. How do you think I feel? I not only have to kiss his ass, I have to give him money too."

As long as politicians can impose arbitrary rules that stifle voluntary exchange business people will have to do the logical thing. As club owner Ray Pistol told the Las Vegas Sun: "If a politician can be bought, I'd buy him or her," Pistol said. "In a heartbeat — cut through the red tape."

And while wealthy club owners are able to mount a legal challenge against Titus's entertainment tax, some less than risqué entertainers are victims. Summer Dew who leads a group called, The Magical Hula Girls, points out in a letter-to-the-editor that Elvis impersonators, live musicians and other small entertainers, have lost their jobs because of the tax and "are invisible and forgotten in the debate over this tax."