House Committee Hears Tax Proposal on Online Gambling

The House Ways and Means Committee held a hearing today on the tax proposals related to Internet gambling. According to Ways & Means Committee Chairman Sander Levin (D-MI), this was not a hearing about the legality of online gambling but,

“We meet today to explore the tax implication and proposals to legalize internet gambling. We need to get a sense of the size and scope of this emerging market which is almost exclusively conducted today outside the United States.”

Current bills being looked at from Rep. Barney Frank (D., Mass.) and Jim McDermott ( D., Wash.), have similar revenue raising goals but the bulk of that revenue comes from income taxes from winnings of players. McDermott however does have an 8% tax on deposits made which would have to be paid by the operators of the gambling sites.

Both of these bills would legalize and regulate online poker but still ban other forms of gambling online such as sports betting. This is how rep. McDermott put it.

“The rule of taxation in this committee is don’t tax you, don’t tax me, tax the guy behind the tree. Well we found the guy behind the tree and what he’s saying is, if you would legalize me I would come out from behind the tree and I’d be glad to pay my taxes.”

What supporters told the panel was that over the next ten years, $42 billion could be collected as revenue for the federal government. The banking and gaming industries support the legislation but in general the opposition consists of Conservative groups, professional sports leagues and state attorneys.

In opposition of the legislation, Rep. Bob Goodlatte (R., Va.), testified,

“It is unfathomable that Congress would consider legalizing a currently illegal activity that imposes harm on the most vulnerable members of our society just to raise money for more big government spending.”

McDermott’s bill would send 1/4 of the revenue generated by online gambling to foster care programs, the arts and early childcare education programs. It also gives individual states to opt out of the legislation but those that do would not get any of the revenue generated by the 8% deposit tax paid by operators.