Internet Gambling Deposit Tax

Recently, the House Committee on Ways and Means had a hearing on the taxation of Internet gambling proposed by Rep. Jim McDermott (D-Wash.) in the Internet Gambling Regulation and Tax Enforcement Act of 2010. The bill was introduced by McDermott as a companion to another bill that Rep. Barney Frank (D-Mass) called the Internet Gambling Regulation, Consumer Protection, and Enforcement Act, which would basically regulate the industry in America.

Many arguments went on about the merits of altogether regulating the industry, but the issue that caused the most contention was the idea of a player deposit tax. Rep. McDermott was the witness that opened the hearing, and he stated that prohibitions of Internet gambling have not worked, and that Americans have made more than $100 billion from offshore Internet gambling sites, and have deposited around $12 billion already this year.

McDermott stated that none of these activities are regulated and taxed by the U.S. government. He further stated that driving Internet gambling offshore was a policy failure, and that the GAO has called Internet gambling borderless. He thinks it is time for the U.S. congress to stop pretending that the future will never come. McDermott also estimated that taxing the industry would generate a sum of $42 billion, with the biggest part of it coming from the income taxes of winning players.

There would be other revenues that came from a tax of 0.25 percent on every wager, which is consistent with the current gambling tax law, as well as a two percent tax on the deposits of players at the federal level. This bill would also allow states and tribes to have the opportunity of sharing the deposit tax at a rate of up to six percent on those same deposits in lieu of other taxes. McDermott stated that in his estimate, when combined with the state income taxes that already exist, tribes and states could raise $30 billion over a 10-year period.

One of the original supporters of the Unlawful Internet Gambling Enforcement Act, which became law in 2006, was Rep. Bob Goodlatte (R-Va.). He argued as a witness against taxation and regulation, saying that college-aged males are doing less Internet gambling since the law passed.

The most resistance to McDermott's proposal seemed to come from the Nevada Congressional delegation, which has supported the idea of regulating the industry. While Rep. Dean Heller (R-Nev.) and Rep. Shelley Berkley (D-Nev.) both agreed that they would like to see Internet gambling regulated in the United States, they both disagreed with McDermott's proposed deposit tax.

Several members of the committee questioned whether it would make sense to regulate the gambling industry at all. However, as pointed out by several witnesses and members of the committee problems with gambling will exist regardless of whether Congress takes action to regulate the industry. No one knows yet if or when the committee will vote on the bill and send it to the House floor.