On Wednesday, the House Ways and Means Committee held a hearing on tax proposals related to internet gambling. Despite Chairman Sander Levin (D-MI) starting off the hearing by saying that whether internet gambling should be legal should not be discussed, the discussion quickly turned in that direction. Featured as witnesses were Congressmen Barney Frank (D-MA), Jim McDermott (D-WA), and Bob Goodlatte (R-VA). The latter was one of the principle architects of the Unlawful Internet Gambling Enforcement Act (UIGEA).
Despite pushing hard for the UIGEA four years ago, Goodlatte(pictured at left) referred to the law as the “UniformInternet Gambling Enforcement Act” on multiple occasions on Wednesday. Ranking minority officials in attendance lamented that the hearing was scheduled in the first place, stating, “Given the fact that just four years ago, the House voted overwhelmingly to ban internet gaming, I have to ask why we are even holding this hearing when [there are] so many other pressing issues.”
Frank in turn questioned why the U.S. Government should give “complete immunity from taxation” to those who gamble online. He added, “We’re talking about a decision by adults to do what they want to do with their own money. When you tell a 25 year-old who wants to play poker on the internet with money he’s earned that he can’t do it, it’s illegal, what is that?” Frank left a half-hour into the two-and-a-half hour hearing to attend a markup.
McDermott (pictured at right) revealed that 32,000 jobs could be created by legalizing internet gambling in the United States. He told the assembled Ways and Means Committee, “Driving internet gambling offshore has been a policy failure. The [Government Accountability Office] has called internet gambling ‘borderless’ and I think it’s time for Congress to stop pretending that the future won’t come.” McDermott introduced HR 4976 in March, which taxes internet gambling deposits to extract revenue from the industry. It’s a companion piece to Frank’s HR 2267.
Goodlatte stressed his distaste with states’ rights being trampled on if the Federal Government were to create a framework to license internet gambling. He also added that Attorneys General and major sports leagues have come out against past versions of Frank’s bill. Goodlatte noted, “Gambling is not a victimless act. The anonymity on the internet makes it easy for minors to gamble online.” He then relayed the story of a constituent who committed suicide after running up gambling debts.
Ways and Means Committee members then pitched numerous questions. Those who weighed in included Charles Rangel (D-NY), Dean Heller (R-NV), Ginny Brown-Waite (R-FL), and Pete Stark (D-CA). Earl Blumenauer (D-OR, pictured at left) asked Goodlatte whether he had ever played poker at home for money. Goodlatte confessed that he had in his “youth.” Blumenauer then expressed remorse for voting in favor of the UIGEA in 2006, saying that the law is “probably not practical and probably inconsistent.”
Dave Reichert (R-WA) asked McDermott what additional burden the Federal Government would face if HR 4976 were to become a reality. McDermott responded, “Collecting the income taxes is not going to cost anything… The wager tax – there’s no change in that law. We already have a wager tax. There’s $42 billion sitting here on the table. Which one of you is not interested in collecting $42 billion by legalizing and regulating something that’s going on in society?”
Heller questioned the rationale behind taxing based on deposits rather than consumption or winnings. McDermott ultimately opined, “This is the one, when talking to the industry, that’s the best way to do it.”
Others questioned whether legalized internet gambling would take away from its land-based counterpart. In this camp was Earl Pomeroy (D-ND, pictured at right), who remarked, “There’s only so much discretionary income available to American consumers that they’re going to spend on gaming activities. If you had Federal support of internet gambling, you’re going to have a diminished traffic flow to brick and mortar gambling.” One could argue, however, that increased interest in gambling could raise traffic to casinos.
A major nugget of news to come out of the hearing was that the House Financial Services Committee will vote on a bill in July to make internet gambling legal. This is presumed to be HR 2267. The Poker Players Alliance (PPA) released a statement on the hearing about two hours into it that read in part, “We thank the Committee for holding this important hearing today. We look forward to a successful markup of legislation to license and regulate online gaming in July in the House Financial Services Committee.”
Also appearing on Wednesday were the IRS’ Christopher Wagner and the Financial Crimes Enforcement Network’s Charles Steele. If you missed any of the hearing, replays of witness testimony can be found on the House Ways and Means Committee website.