House Eyes Internet Gambling Reform

Washington, D.C., May 18, 2010—As the House Ways and Means Committee
prepares for a hearing Wednesday on potential revenue from regulated Internet
gambling, analysts at the Competitive Enterprise Institute urge Congress to,
first and foremost, reform the Unlawful Internet Gambling Enforcement Act
(UIGEA). After a delay of six months, banks and other credit processing
companies will soon be required to be in compliance with the vague and
confusing law, which will result in a de facto ban on Internet gambling on June
1st of this year.

The committee will discuss Rep. Jim McDermott’s (D-WA) proposed
Internet Gambling Regulation and Tax Enforcement Act, which focuses on the
potential revenue to be generated from taxes on online gambling activities and
earnings. According to a report released last month and conducted by H2
Gambling Capital, over a five-year period legalized online gambling could create
32,000 jobs, $94 billion in economic activity and an additional $57.5 billion
in tax revenue.

“The amount of money exchanged in online gambling activities
is enormous, and does have the potential to generate substantial tax revenue,
but that’s not why the existing law should be overturned,” said CEI policy
analyst Michelle Minton.
“The fundamental issue is consumer choice – it is not the place of government
to tell adult citizens what activities they can and cannot engage in from the
privacy of their own homes.”

In conjunction with the laws proposed by other legislators –
such as Financial Services Committee Chairman Barney Frank (D-MA) – that would
overturn the ban, McDermott’s legislation would amend the tax code, allowing
states to draw a 6% tax on Internet gambling deposits with the federal
government authorized to receive 2%. While skeptical about the proposition
of requiring licenses for Internet casinos, Minton believes that any
legislation substantively reforming the current Unlawful Internet Gambling
Enforcement Act is a step forward.

“First and foremost regulators need to correct the egregious
violation of individual rights that UIGEA represents. Without this correction,
gambling online will simply move into the shadows where honest individual will
have nowhere to turn in the event that they become victims of actual fraud,”
said Minton.

The hearing will take place Wednesday at 9:30am. Witnesses
will include Rep. Barney Frank (D-MA), Rep. Jim McDermott (D-WA) and
representatives from the Internal Revenue Service and the Treasury Department.
The hearing can be viewed live on the Ways
and Means Committee website. 

CEI is a non-profit, non-partisan
public interest group that studies the intersection of regulation, risk, and
markets.