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House Panel Presides Over Wednesday Hearing On Online Gambling Taxation Bill

Posted on May 21st, 2010

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The hearing by the Ways and Means Committee of the House of Representatives on a bill known as H.R. 4976 went on as scheduled Wednesday. The bill, authored by Rep. Jim McDermott, D-Washington, seeks to tax online betting in the United States.

McDermott’s online gambling taxation bill was filed as a necessary funding tool of H.R. 2267, legislation filed by Rep. Barney Frank, D-Massachusetts, that would legalize and regulate online poker and gambling. Among those who testified in the hearing Wednesday were the proponents of online gambling, Rep. McDermott and Rep. Frank. Only one opponent of online gambling spoke in the hearing, Rep. Bob Goodlatte, R-Virginia an advocate of the Unlawful Internet Gambling Enforcement Act (UIGEA).

McDermott’s bill taxing online wagering on poker and most forms of gambling is estimated to generate billions of dollars in revenue. Part of the earnings from taxes would be used to fund the foster care program of Rep. McDermott. The rest would be shared by the federal government, the states, and the federally recognized tribal governments.

Rep. Frank spoke first, saying that the adult need not be told by the federal government how to spend their money. He then talked about the many risks faced by U.S. consumers who currently gamble online. Identity theft, fraud, money laundering, underage gambling, Frank said, are just some of the dangers that the American players are constantly dealing with in the current state of the country’s online gambling industry.

He further added that the strict online gambling regulations of those countries allowing online gambling are exactly followed by some gambling operators which are based in those countries, but the American customers cannot seek local assistance once they become victims of an online scam, that is why, according to Frank, it is advantageous to the American people to legalize and regulate online gaming in the U.S. Another positive aspect of the bills, and more relevant to the hearing, Frank said, is the large amount of money in taxes that have not been collected under existing law, and the additional taxes that would be collected with the passing of McDermott’s bill.

Frank assured that the success of his and McDermott’s bill would bring the online gambling industry out of the shadows, would make certain that not only the offshore gambling companies would profit from all the taxes, but also the United States and its people, and would also ensure the safety of the American consumers.

When it was McDermott’s turn to speak, his testimony centred on taxation, and the monetary objectives of legalizing and taxing online wagering since his bill’s focus is to tax the online gaming industry. McDermott said that according to gambling analysts, for this year alone, roughly $12 billion have been spent by American gamblers on online gambling.

A total of almost $100 billion has been wagered by Americans gambling on Web sites, and annual gross revenues earned by offshore operators run to as much as $5 billion. All these activities remain unregulated and untaxed by the U.S. government, he said. McDermott said banning online gambling in the country has not achieved its desired effect, but only succeeded in sending gambling operators offshore. He said the GAO has tagged Internet gambling “borderless,” and now it’s time for the federal government to accept that reality.

Rep. Goodlatte spoke next, mentioning researches and surveys that showed the negative aspects of legalizing online poker and gambling, and how bad it would be for the people of the United States. He said underage players can easily gamble online because of the anonymity of the Internet.

He mentioned addiction, bankruptcy, divorce, crime and moral decline as some of the negative consequences of online gambling, as it is with conventional forms of gambling, and he said it is society that bears such impact. He cited a case of a constituent in his district whose college-aged son committed suicide because of the huge amount of debt he incurred from Internet gambling. Goodlatte said most online gamblers experience financial ruin and tragedy.

There were other speakers, but the topics they talked about were not as significant as the earlier testimony.

Some committee members who backed the bills applauded the projected revenue that would be generated by taxing the industry. Equally, there were also some members who opposed the bills. One member questioned why the tax would not be imposed on winnings, but instead on deposits. McDermott’s bill is scheduled for a mark-up in the House Financial Services Committee whose chairman is Rep. Frank.