Congress Ponders Repeal of Online Gambling Ban

Published May 1, 2009

With Congress looking for ways to collect new tax revenue during the recession, advocates of online gaming like the odds of seeing a repeal this year of the federal ban on Internet gambling.

A recent report by London, England-based PricewaterhouseCoopers showed the United States government could raise nearly $52 billion in new revenue over the next decade by lifting a three-year-old ban on Internet gambling and taxing the activity instead.

Gambling supporters hope the report will help propel efforts in Congress this year to repeal the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA), which makes it unlawful for banks, credit card companies, and online payment processors such as PayPal to transfer funds from players to online gambling establishments.

The law technically did not criminalize the playing of poker online but instead made it more difficult for people to get their money online. Rep. Barney Frank (D-MA) has indicated he might introduce a bill to overturn the law this year.

PricewaterhouseCoopers finds taxing and regulating Internet gambling would bring $20 billion more into the U.S. Treasury than it would have in 2007 because of consistent and strong growth in the U.S. online gambling market.

Ban Called Ineffective

Tom Bell, an expert in the gambling industry at the Cato Institute in Washington, DC, thinks the online gambling ban was completely ineffective and simply made online U.S. gambling companies unable to compete with foreign competitors.

“It never had much prospect of achieving its alleged goal—reducing illegal gambling over the Internet.” Bell said. “Rather, it did little more than speed up the flight of Internet-based gaming and financial services from the United States to more friendly homes overseas.

“U.S. consumers still enjoyed relatively free access to those services, so they hardly noticed the difference. In effect, the ban simply imposed more regulatory burdens on U.S. industries, putting them at a competitive disadvantage relative to their overseas counterparts,” Bell said.

Internet Freedom Rules

Bell think the Internet’s inherent freedom makes regulating online gambling or commerce unworkable.
“In this particular area, taxes on legal gambling cannot go very far without discouraging consumers from returning to unauthorized but untaxed overseas services,” Bell said. “The Internet provides consumers with instant freedom of exit from regulatory excess, helping to keep politicians, if not honest, at least not grossly rapacious.”

Ban Supporters Disagree

Tom McClusky, senior vice president of the Family Research Council, believes the ban should not be repealed despite the boost in government revenue it would bring. The ban needs to stay in place, he says, because it protects people from the bad consequences of gambling.

“People are worried because the [stock market] is doing so badly—except they put their money into something that gives even less return, things like Internet gambling,” McClusky said.

Analysts say the continued expansion of the online gambling industry in America is a result of “the convenience factor.” Online gambling is quicker and easier to do than going to a casino, so the number of Internet gamblers would explode if the ban were lifted, McClusky says.

‘Freedom to Gamble’

Bell believes gambling is going to occur no matter what the government does, so it is best to regulate it instead of pushing the industry and its tax dollars overseas.

“I would not say that anyone ‘gives’ us the freedom to gamble.” Bell said. “No government—federal, state, or local—should presume to deny fools the right to part with their money as they alone see fit.

“Politicians do not give us our freedoms; they can only respect them or deny them,” Bell said. “Legalizing gambling would remain a good idea even if—indeed, especially if—it were not used as a cash cow by politicians. But there are so many bad ideas floating around Washington these days that taxing online gambling could hardly help but offer a better approach to raising government revenue.”

Thomas Cheplick ([email protected]) writes from Cambridge, Massachusetts.

For more information …

The Unlawful Internet Gambling Enforcement Act of 2006:

“Estimate of Federal Revenue Effect of Proposal to Regulate and Tax Online Gambling,” September 2008, PricewaterhouseCoopers: