Bill to OK Online Gambling Advances in Congress

Published July 1, 2009

Rep. Barney Frank (D-MA) has introduced a bill that would essentially repeal the Unlawful Internet Gambling Enforcement Act and instead tax and regulate online gambling.

The legislation (HR 2267) would allow licensed gambling operators to accept online wagers from people in the United States, amending the 2006 UIGEA, which targets Internet gambling by making it a crime for banks to process financial transactions used to place bets online.

Similar legislation failed in the last Congress. Frank, who has the support of groups such as the Poker Players Alliance and companies including, said when introducing the bill, supporters “have been mobilizing,” adding, “this is a grass-roots thing.”

Bucking Social Conservatives

Supporters of the bill estimate taxes collected from online gambling could bring in up to $6 billion annually to the federal treasury. Social conservatives and the legal casino industry are lined up against the measure.

“There was evidently a strong movement amongst social conservatives to prohibit online gambling,” said Leslie Bocskor, managing partner for Lenox Hill Partners, a New York City-based consulting firm working with Web-based gambling interests. “Some of the traditional gambling institutions also feel they would lose business from their land-based casinos if people were able to stay home and gamble.”

Gamblers Evading Current Law

Bocskor is among those who think the federal ban on Internet gambling hasn’t worked, as canny gamblers have found ways to bet online via accounts overseas, where the practice is generally permitted.

“We have tried prohibiting without success, and lost enormous amounts of potential tax revenue,” Bocskor said. “Business opportunity that has gone overseas and capital that is being put at risk in online casinos is taking capital out of the U.S. economy. Many are now saying we should bring the business back.

“Not only will this be a better way of raising money to offset some of the spending we are seeing,” Bocskor added, “it will also allow U.S. citizens to work for the businesses, and keep the money that is being gambled in U.S. banks and the U.S. economy.”

Tax Benefit Skepticism

Bartlett Cleland, director of the IPI Center for Technology Freedom in Dallas, Texas, is skeptical of the proposal to tax and regulate online gambling. He foresees problems with federal oversight in an industry traditionally regulated at the state level.

“The proposal would seem to create a new federal regulatory body, especially given that each state regulates gambling in its own way with its own gaming commissions or outlaws it to varying degrees,” Cleland said. “Just the notion of how the tax would be collected is a concern.

“At best the law would require self-disclosure of winnings, since much will come from offshore gaming operations,” Cleland added. “These operations would need to cooperate by sending statements of individuals’ winnings that cannot be counted on—or in the alternative would almost have to be an aggressively invasive plan.”

Liberty vs. Taxes

Cleland also questions whether having the federal government heavily regulate online gambling will result in a net benefit for personal freedom.

“The notion that any activity should be legalized simply as a means to raise revenue seems poor justification,” Cleland said. “Certainly from a liberty point of view, there is no change. Either the behavior is outright illegal or the government layers the activity with regulation and heavy taxation. Neither approach seems a hallmark of liberty.

“But more specifically, it is wrong that a government on one hand finds an activity objectionable but then turns around and attempts to raise money on that activity,” Cleland added.

State by State Confusion

Harold Krent, dean and professor at the Chicago-Kent College of Law, believes repealing UIGEA “would eviscerate each state’s ability to determine for itself whether to permit gambling.

“With the increased success of [gambling operations on Indian reservations], however, it has become more difficult to preserve each state’s discretion,” Krent said. “It is up to each state to determine whether to permit lotteries, poker, and the like. That’s the nature of our federalist system.”

Troy Stouffer ([email protected]) writes from Baltimore, Maryland.