Let states compete on sports betting

Let states compete on sports betting
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At the end of its last term, the Supreme Court voted to strengthen the Constitution in a 6-3 vote that was a long overdue decision to end a law that said “some states are more equal than others.” The question before the court was a 1992 law that banned states from regulating and taxing sports betting except in Nevada and three other states. The court ruled instead that all 50 states have to be treated the same, and that the federal government could not tell the states what to legalize or ban. While gambling can be a contentious issue, this makes it even more appropriate for states to decide, rather than a “one size fits all” federal approach.

It is a great victory for federalism, the mechanism that limits the size and scope of government by requiring 50 states to compete to provide the best and lowest cost government. States compete for citizens who are free to move. States compete for business investment that moves quickly towards competent government, serious rule of law, lower taxes, and less regulation. Now the House Judiciary Committee plans to look into the issue and will be happy to find that the court decision is not only a victory for restoring the Constitution, federalism, and the equality of the states, but it can also create jobs and increase American wealth.

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A 2017 study by Oxford Economics predicts that legalizing sports betting nationwide would create more than 200,000 jobs and increase the gross domestic product by $22 billion every year. But the more important victory is for federalism that will lead to better government in all 50 states. To put this missed opportunity in perspective, an estimated $4.5 billion was spent on legal sports betting in Nevada last year. By comparison, experts think more than 20 times that amount was spent on illegal sports betting in the same year. Unsurprisingly, lawmakers across the country have been eager to bring this booming industry to their state legally.

In recent years, a handful of states had legal frameworks ready to go in preparation for the expected Supreme Court decision, including New Jersey, which brought the case, Mississippi, Pennsylvania, and West Virginia, while more than a dozen other states have bills in the deck. As lawmakers in those states and others continue to work to legalize sports betting, they should keep in mind that there are both smart and stupid ways to do this. If done correctly, the legalization of sports betting is a way for state lawmakers to raise revenue without raising taxes. As is the case with every industry, the best way to maximize the benefits of legal sports betting is to avoid imposing burdensome regulations, and costly taxes and fees, as they would remove the incentive to move things from the untaxed black market to the taxable and legal marketplace.

While it is great that four states have, in anticipation of this Supreme Court decision, legalized sports betting in their states, Pennsylvania was particularly boneheaded in its approach. The Keystone State enacted a whopping 34 percent tax on wagered revenue plus an additional 2 percent “local share assessment” tax. In addition, it also forces casino operators to pay a $10 million licensing fee if they want to offer sports gambling. By comparison, Nevada taxes sports betting at 6.5 percent of what a casino takes in from bets minus what they pay out in winnings.

It is clear that lawmakers in Pennsylvania were more interested in voting for pretend mountains of tax dollars they could spend at leisure. The Supreme Court endorsement of federalism widens the door to allow states to experiment with expanding liberty through school choice, home schooling, medical marijuana, and right to work and many other decisions that should not be driven by Washington. The only shadow cast on this good news for self government is a threat from some congressmen and senators who have suggested that Washington should regulate what they can no longer ban, which is betting on sports. That includes the threat of a federal government mandated payout to the National Football League, National Hockey League, and National Collegiate Athletic Association at the expense of fans coyly called an “integrity” fee.

The states are capable of regulating betting. They do so in other contexts and this should be no different. Government regulation to achieve a mandated payout for leagues is not a reason for federal intervention. Light touch regulation is more likely to be achieved with a free market. Let the states compete on sports betting and fans and taxpayers will win.

Grover Norquist is president of Americans for Tax Reform.