Red Rock Resorts in Las Vegas strongly believe that a policy of no taxes on tips could result in more economic gain for Las Vegas, to the tune of as much as $200 million. The idea was begun by President-elect Trump - which could be one of the reasons why he has won in Nevada, the first Republican to do so in twenty years.

Red Rock Resorts believes that a proposed "no tax on tips" policy, a hot topic during the recent presidential campaign, could infuse the Las Vegas economy with up to $200 million annually. The company's executives shared their optimism on the potential economic impact during a third-quarter earnings call, citing economic analyses that highlight the policy's advantages for Las Vegas's tourism-driven economy.

The tax exemption proposal was initially introduced by President-elect Donald Trump, with support from his opponent, Vice President Kamala Harris. Trump's platform on tax-free tips, which could directly benefit thousands of tipped workers across Nevada's hospitality and gaming sectors, may have helped him secure Nevada, marking the first time a Republican presidential candidate has won the state in over 20 years. Trump claimed Nevada by a margin of 3.1%, or almost 47,000 votes.

Speaking on the conference call, Lorenzo Fertitta, Red Rock Resorts Vice Chairman, expressed his opinion regarding the policy's potential. "We've looked at some economic analysis, not - I don't know if anything has really been published on it," Fertitta said. "We think it could add somewhere in the neighborhood of about $200 million a year to the local economy here, which obviously we would benefit from."

Economic boost for hospitality workers and gaming operators

The Culinary Union, representing a large portion of Nevada's hospitality workforce, threw its support behind Harris in the presidential race. Now, the union has also come out in favor of eliminating taxes on tips, arguing that it would directly benefit its members, many of whom rely heavily on tips as a significant portion of their income. Supporters say the policy would increase disposable income for thousands of tipped employees across the city, enabling them to spend more locally, including at casinos, entertainment venues, and restaurants.

For Red Rock Resorts, which operates several gaming and hospitality properties in the Las Vegas Valley, the impact of tax-free tips could translate into increased foot traffic and higher spending among customers. "No tax on tips, I think would be a positive for our business," remarked Scott Kreeger, Red Rock President. Many of Red Rock's patrons are hospitality employees who could benefit from the added income, potentially boosting Red Rock's revenue.

The $200 million estimate Fertitta cited demonstrates the potential for economic ripple effects that extend beyond gaming operators. Rival companies such as Boyd Gaming and Golden Entertainment, which also cater to locals in the Las Vegas area, could experience similar boosts from increased customer spending if tipped employees see an income increase.

Challenges to implementation

While the potential economic benefits appear promising, some analysts caution that implementing the tax-free tips policy could face several challenges. For one, many tipped workers already fall into lower income tax brackets, where federal income tax on tips may be minimal. Furthermore, amid ongoing concerns about the national deficit, federal lawmakers may be reluctant to forego the revenue from taxing tips.

Still, proponents of the measure argue that the potential economic stimulus could offset any short-term revenue loss, especially in high-tourism areas like Las Vegas, where tipped employees form a significant portion of the workforce. Should the policy come to fruition, Red Rock and other gaming operators stand to benefit both from increased customer spending and reduced payroll expenses.

Payroll savings for Red Rock and competitors

In addition to increased revenue potential, Red Rock executives believe the policy could lead to cost savings. On the recent earnings call, Red Rock's Chief Financial Officer, Stephen Cootey, suggested that the company could save between $2 million and $3 million in payroll expenses annually if the policy is enacted.

For the company's competitors, including Boyd Gaming and Golden Entertainment, similar payroll savings could materialize. As Red Rock's operations are localized within Nevada, any change that amplifies disposable income for local customers and reduces internal costs would be a welcome development, particularly as the gaming sector continues to recover from the pandemic's lingering effects.