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House Eyes Internet Gambling Reform

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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.