Let States Legalize Online Gambling to Stimulate the Economy

The Joint Select Committee on Deficit Reduction—the Super Committee—is soon expected to present its proposals to cut the deficit by $1.5 trillion. There is speculation that its recommendations could include legislation to legalize, regulate, and tax Internet gambling in the United States. If they do, Congress and the administration should take up the recommendation.

According to some estimates, legalized online gambling could contribute up to $150 billion to the American economy. Therefore, it is a highly attractive prospect that has garnered increased media and legislative attention in recent years with several bills introduced in Congress and about half a dozen states considering legalization on an intrastate basis. And the best way for Congress to stimulate states’ economies while respecting state sovereignty is to repeal the Unlawful Internet Gambling Enforcement Act (UIGEA), and instead allow states to legalize and regulate online wagering how they see fit.   A state-based system would promote regulatory competition, strengthen states’ independence and self-sufficiency, and result in far more economic stimulation and job creation than a federally regulated market.

There is no valid reason or right for any government, whether state or federal, to bar its citizens from voluntarily engaging in an activity that does not violate the rights of other citizens. The question over the morality of gambling was resolved long ago. More than 70 million Americans gamble each year and nearly 90 percent say that they have gambled at least once in their lifetime. Every state, apart from Hawaii and Utah, has some form of legalized gambling and all but seven States operate lotteries. Yet, some lawmakers have blocked Congressional attempts to legalize and regulate online betting at the federal level. This has left the legality of such activities up for debate.

As demonstrated by the Department of Justice’s recent crackdown on Internet gambling websites, bans do not work.  The open nature of the Internet makes a prohibition on such activity virtually impossible and enforcement is on dubious legal grounds when the websites are owned and operated in foreign nations. Bans simply force consumers to operate outside of the law without the protection of the American government.

It is unlikely that Congress could pass a federal regulatory scheme that sufficiently pleases all states. It is likely that the only way online gambling will become a legal and thriving industry in the U.S. is to have each state determine how licensing and regulation can best serve its residents. Such a system will raise revenue more efficiently and enable the creation of a greater number of jobs than a federal system.  A state-based system would allow for competition, innovation, and alteration based on the demands of each state’s constituents. If one state regulated online gambling poorly, businesses could seek greener pastures in neighboring states.  Most states already have some form of legalized gambling, and therefore already have the necessary regulating bodies to oversee licensing and regulation of a legal online gambling industry. Federal laws already exist regarding personal income taxes, so online gambling, if officially legalized, could be taxed like any other economic activity. This additional revenue would allow states to get their own fiscal houses in order without requiring the help of federal dollars, thus saving the American public from financing more bailouts.

Americans ought to have the right to do with their own money as they please in the privacy of their own homes. Current US law puts such activity in a legal gray area.  Congress needs to shed some light by making the legality of online gambling unambiguously legal. The best action federal lawmakers can take to achieve that is to repeal UIGEA and allow states to legalize and regulate Internet gambling in the way that best serves their residents.