TAX NEWS - June 2010

Income tax on poker and gambling winnings

Online Poker Ban Compared to Prohibition of the 1920s

Expressing his frustration with legislation that he feels harkens to a bygone era, Representative Jim McDermott (D-WA) has likened a ban on Internet poker to the prohibition of alcohol in the United States in the 1920s and 1930s. Rep McDermott made his comments after seeing the missed opportunity to collect revenue from online gambling and the failure to prevent citizens from participating with offshore casinos and poker rooms.

Actively involved in the effort to legalize and regulate online gambling, McDermott said, "Regulation and taxation have proven to be a better policy for our country when it comes to alcohol. The same is true for online gambling." His statement has merit; although online gambling is illegal in the US, it is estimated that 15 million people do it via offshore companies, proving that the efforts to stamp it out are not succeeding.

At the recent House Ways & Means committee meeting regarding taxation of internet gambling, McDermott explained why the current position is flawed. He said, "Prohibition hasn't prevented the millions of Americans who want to gamble online from doing it. Driving internet gambling offshore has been a policy failure."

In an attempt to acknowledge the shortcomings of an Internet gambling ban, McDermott introduced HR 4976, the Internet Gambling Regulation and Tax Enforcement Act. By legalizing and taxing online poker and gambling, the law has the potential to generate an estimated $42 billion in tax revenue over 10 years. Of this total, more than fifty percent would come from income tax on poker and gambling winnings.

In a time when prohibiting Americans from gambling online isn't proving to be effective, some in Congress are looking to recognize the same failure seen with Prohibition in the 20s and 30s, suggesting that the country legalize it and generate tax revenue from it.