Industry Bets Gaming Group Will Help It Win Favor : Gambling: Casino, hotel and equipment executives are launching a national association to enhance their image.

When Clinton Administration planners were pondering ways to pay for health care reform last year, a new idea suddenly surfaced: a 4% gross receipts tax on gambling.

The Administration figured gambling could be classified along with cigarettes and alcohol, something faintly disreputable that the federal government could tap for significant additional revenue.

Although the proposal ultimately went nowhere, it did provide a dramatic wake-up call for the nation’s $40-billion-a-year gambling industry.

Just the public discussion of a new federal tax “got everyone very, very agitated,” said Frank J. Fahrenkopf Jr., a well-connected Washington lawyer who will open the American Gaming Assn. on Thursday.

Vowing never to be caught by surprise again, a group of powerful casino, hotel and equipment executives decided to push for a higher profile for the gambling business by creating its first national trade association and hiring Fahrenkopf, Republican national chairman from 1983 to 1989, as its president and top lobbyist.

“We decided that, rather than fight a fire, it would be better to prevent a fire,” said Charles Mathewson, chairman of International Game Technology, which makes slot machines and other equipment, and serves as the chairman of the fledgling association.

The trade group “should have been formed a long time ago because we are a pretty big industry,” Mathewson said in a telephone interview from Las Vegas. “We never had representation on that side of the country.”

The approach is simple: Here’s a big, booming industry--employing lots of people, and generating big bucks for state treasuries--that is demanding new respect because of its growing economic clout.

The trade group aims to provide a broader vision for an industry that once focused almost exclusively on getting permits and recognition from state legislatures and governors. After all, industry advocates argue, only Utah and Hawaii among the nation’s 50 states don’t allow some form of betting through lotteries, racetracks, casinos, card clubs or riverboats.

Incidentally, nobody connected with the business uses the word gambling in public discussion: gaming and entertainment are the preferred words.

With 400,000 to 500,000 workers, the “gaming industry is expanding when most industries are downsizing,” said Fahrenkopf, emphasizing that the business should be encouraged by politicians because it is a major engine for generating new jobs.

“An awful lot can happen here in Washington, by laws being passed or administrative actions or regulations,” said Fahrenkopf, who was a trial lawyer in Nevada, and represented casino owners and applicants at regulatory agencies, before becoming head of the Republican National Committee in 1983. “We’ve got to deal with all sorts of regulatory, educational and political issues affecting the industry.”

The American Gaming Assn. and its political allies on Capitol Hill are already preparing for their first political challenge--an impending contest with the Internal Revenue Service. The AGA has allied itself with the Gaming Caucus, a group composed of a dozen legislators--including members from Nevada, Illinois and New Jersey--that also recently formed to promote gambling interests.

The IRS proposes to allow only a 50% deduction for “comp” costs--the expenses of providing free rooms and meals at casinos to favored customers. Currently, the casinos deduct all comp costs as ordinary business expenses.

The IRS also is thinking of limiting deductability to half the costs of the meals provided to employees, a traditional feature in the casino business.

Airlines and amusement parks also provide meals for their employees, says Mark Emerson, chief of staff for Rep. John Ensign (R-Nev.), chairman of the Gaming Caucus, but the first target for the government is the casino business.

The IRS “sees an industry that is thriving and making money, and figures it can target them without much resistance,” Emerson said. “The IRS thinks there is not much of a natural constituency to rise up and say ‘You can’t do this.’ ”

Any threat of higher taxes on the insurance business would have insurers loudly protesting and asking their policyholders to complain to Congress, Emerson says, but a casino cannot threaten to make the odds worse at the blackjack tables or the slot machines because of a prospect of higher taxes. And gamblers won’t rise up and flood Washington with calls and letters just to defend the casinos.

That’s why industry advocates are convinced that they need an aggressive and high-profile trade association to keep the gaming message from being ignored amid the daily cacophony in Washington.