Internet gambling, which was dealt a body blow by the GOP-controlled Congress in late 2006, may be making a quiet comeback, thanks to the lure of tax revenues in an economy that is still struggling to regain its footing.
At least three bills have been introduced that would, to varying degrees, lift the virtual ban on Internet gambling that went into effect three years ago when former President George W. Bush signed into law the Unlawful Internet Gambling Enforcement Act (UNIGEA). None of the bills pending in the House and Senate have moved out of the committees to which they were assigned, and none has been scheduled for floor action. Still, prospects are brightening sufficiently to start a slight, but audible, buzz in the nation’s capitol.
For example, many expect hearings will be held this fall on at least one bill — Massachusetts Democrat Barney Frank’s “Internet Gambling Regulation and Taxation Act.” If so, it is likely that testimony in support of the legislation will be based as much on economics as on the principle that individuals should be able to gamble online if they want to. The economics of taxing Internet gambling are indeed impressive.
Online poker, for example, which is but one segment of the online gambling universe, accounts even now for some $6 billion per year just in the United States, according to the Poker Players Alliance (PPA). Globally, Internet gambling of all types will grow to a staggering $144 billion in revenue by 2011, according to estimates by PricewaterhouseCoopers.
Already, lawmakers like Frank are pitching their proposals as revenue “enhancers.” The lawmaker, who chairs the House Financial Service Committee and is a senior member of the Judiciary Committee, would accomplish this by imposing a 2 percent “licensing fee” on internet gambling deposits held by any Internet gambling company operating in the United States. That 2 percent tax alone would yield an estimated $51 billion in its first decade. Five billion dollars or more each year to a federal government starved for income to help balance a vast outflow of red ink is gaining the attention of lawmakers in Washington. This is happening despite continued opposition from the religious right, the NFL and other “hard sports,” the NCAA and many domestic casino operations. State government could also be expected to jump on the online gambling tax bandwagon.
Reportedly, even casinos that have in the past strongly opposed online gambling are starting to realize that if Internet gambling is even partially legalized, the entire gambling industry stands to profit. As noted by John Pappas, executive director of the PPA, in those countries in which online gambling is legal, many participants also place bets at “brick-and-mortar” casinos.
The focus on potential revenue from online gambling is entirely understandable when considering the almost desperate search by lawmakers in Washington to find new sources of income with which to fund its insatiable appetite for money. This process is also dictated because of the way in which the federal government has attacked gambling over the years.
The two primary weapons in the federal government’s war against Internet gambling are the 1961 “Wire Act” (which addresses telephone or telegraph-based gambling) and UNIGEA, which updates the 1961 law to include the more modern mode of communication. Neither statute outlaws gambling outright. Rather, the laws combine to make it illegal for businesses to transfer or retain funds derived from or related to gambling activities. Thus, to “legalize” online gambling, it becomes necessary to focus on the “money trail,” since that is where the federal law has directed its enforcement effort.
Moralists and business that see online gambling as competition can be expected to continue to oppose efforts to resuscitate the Internet gambling industry. The poor economy and profligate government spending, may have become their most serious adversaries.