Internet Gambling Ban to be Lifted?

Legislation to repeal last year’s on-line gambling ban was introduced by Rep. Barney Frank (D. MA) , the chairman of the House Financial Services Committee. The proposed legislation, Internet Gambling Regulation and Enforcement Act (link no longer available), proposes to legalize on-line gambling, while enforcing strict regulations and policing.

History: There was an attempt to prohibit Internet gambling in 1999, but that bill was defeated. Last year, the the Unlawful Internet Gambling Enforcement Act of 2006 was tacked onto the Safe Port Act, and was signed into law. In addition to securing the ports and beefing up the Department of Homeland Security, the law prohibited financial institutions from transferring funds to Internet gambling sites (excluding fantasy sports, on-line lotteries, and horse racing). The reasoning was that there was no way to track where on-line gaming money was going, and that it could be used to fund terrorism.

Effects: The Unlawful Internet Gambling Enforcement Act of 2006 did not completely eradicate on-line gambling, it only served to prohibit US financial institutions from transferring funds to on-line gambling sites. Many people found ways around that by wiring money through overseas companies, or sending money orders. About half of the prominent on-line poker sites still accept US customers, while others do not, but are pushing hard for the bill to be overturned.

Support for Repeal: In Frank’s legislation, Congress states that Internet gambling is a $13 billion and growing industry. They propose to put protections in place against underage gambling, compulsive gambling, money laundering, and fraud. The proposal also states that on-line gaming will provide additional tax revenues and reduce tax avoidance.

If Repealed: If this legislation is approved and signed into law, people will no longer have to worry about the legalities and (hopefully) the safety of on-line gambling. Millions of dollars in taxes will be collected from the on-line gaming sites, and additional taxes would be collected from the gamblers’ winnings.

Will it Happpen? At this point, it is too early to tell. But with the current war on terrorism, Congress is facing enormous budget shortfalls. If Congress can find a way to efficiently tax the gaming companies for monies made from US gamblers, and find a way to tax the gamblers on winnings, it might stand a chance. Congress is also currently facing public outcry to reform the Alternative Minimum Tax. If Congress does reform AMT there will be even less tax revenues – so this could be a way to reform AMT and make up the income shortfalls by legalizing and taxing on-line gaming.