Online gambling gets boost as lawmakers eye revenue prospects

While all agree a scheduled ban on online gambling will still enter effect on June 1, many point to this week's hearing before the House Ways and Means Committee as an early sign that lawmakers might nix their Internet gambling prohibition in favor of a plan that would heavily tax and regulate the industry.

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A study by the Joint Committee on Taxation found the House's two companion online gambling bills could rake in up to $42 billion in new federal tax money during the next decade. Even if early debate slims down some of those proposed fees, decreasing the projected revenue, the new dollars might still prove convincing enough to push skeptical lawmakers into backing legislation that allows Americans to bet online once again.

"The momentum is coming together to replace [prohibition] with a common sense approach for taking control of the flourishing underground," said Michael Waxman, spokesman for the Safe and Secure Internet Gambling Initiative. He later added that it was really a confluence of factors — from the need to protect consumers to the need to find new sources of federal revenue — driving this week's online gambling debate.

The Poker Players' Alliance, a group representing the industry and its big players, also described the revenue possibilities as "appealing," though it, too, stressed consumer protection was the bills' foremost positive element.

Online gambling returned to House lawmakers' radar this week as a result of the Ways and Means Committee hearing on two proposals that would legalize and tax the practice. Those efforts, led by Reps. Barney Frank (D-Mass.) and Jim McDermott (D-Wash.), would ultimately overturn a ban on Internet gambling scheduled to enter effect in a matter of weeks.

Lawmakers instituted that ban — which industry leaders liken to the alcohol prohibition — with the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006. While it was initially scheduled to begin December 1, 2009, lawmakers successfully lobbied for a six-month delay, setting the new date for June. However, Democrats eventually abandoned later efforts to postpone the ban a second time as part of a deal between the Obama administration and Sen. Jon Kyl (R-Ariz.) over a series of stalled White House nominees.

But supporters, including Frank and McDermott, have decried that looming ban as ineffective, as it has only pushed online gambling underground or overseas while depriving the federal government a chance to regulate and protect consumers.

To address that, Frank's legislation would set strict licensing rules for online gamblers. McDermott's bill, meanwhile, would establish a tax structure that could deliver $42 billion in tax revenue to the federal government, and up to $30 billion total to states that choose to participate in the program. About one-fourth of the federal revenue from McDermott's plan would be devoted to foster homes.

"[W]e are making tax criminals of Americans who can’t declare their online winnings to the IRS,” McDermott said at Wednesday's Ways and Means Hearing.

"Regulation and taxation have proven to be a better policy for our country when it comes to alcohol," he added. "The same is true for online gambling."

Frank, as chairman of the House Financial Services Committee, later said at Wednesday's hearing he plans to hold a markup on his legislation sometime in July. But even early momentum in the halls of Congress could make shepherding his bill to the floor rather difficult.

Rep. Spencer Bachus (R-Ala.), the ranking member on Frank's committee, told reporters this week that online gambling was the "crack cocaine" of the betting world. He later promised to do everything he could to prevent the legislation from reaching the floor.

A number of Republicans on the Ways and Means Committee also testified or remarked this week that online gambling could produce a host of social ills — from divorce to suicide.

But perhaps working in supporters' favor is the realization that the nearly $106 billion online gambling industry could offset other policy proposals or help pay down the deficit. That possibility led Rep. Earl Blumenauer (D-Ore.), one of 317 members to support the original ban, to declare Wednesday that he was "wrong" in 2006.

"Not only are we missing out on a major revenue source, at a time when we’re working to rein in the deficit and spend money on important job and healthcare initiatives, but we’re also missing out on a vital job creation opportunity," he said.

"The best solution is to end the prohibition on online poker and proceed with reasonable regulations," the lawmaker continued. "This will move this hidden economy into the open, improve consumer protections and safety, and allow revenue to flow to U.S. taxpayers, rather than to illegal foreign operations."

Some opponents, however, signaled they would stridently oppose the effort, even if it proves lucrative for the federal government.

Online gambling would "harm on the most vulnerable members of our society just to raise money for more big government spending," said Rep. Bob Goodlatte (R-Va.) on Wednesday.