Some federal debate on legalizing and taxes online gambling, from the LVRJ:
Democrat Shelley Berkley said she backs legalizing Internet gambling, but said it is too early to think about taxing it.
“Because the industry is not even established yet, I can’t imagine how we can know with any degree of certainty how the special tax would affect operators or customers,” she said.
“Let’s legalize Internet gaming, regulate it, and watch the industry develop and grow in the United States,” she said. “This is not the place to find (revenue) nor the method to get at it. I strongly believe that our economy, our consumers, and the future U.S. internet gaming industry will be better served by legalization and regulation — not by taxation.”
I think that Berkley is right on here. There are some great arguments for legalizing online gambling; filling budget gaps isn’t one of them. From a philosophical point of view, I’d say the most compelling argument for legalization is that, like gambling at casinos, this is something that Americans want to do, and that most people can do without causing harm to themselves or others. If you’re looking at it as a form of entertainment, it’s no different than spending the money on buying digital downloads of media content; if you’re looking at it as gambling, it’s no different from buying lottery tickets, which many people can do at convenience stores in their own neighborhoods. Is there really a moral distinction between buying lottery tickets and playing $0.10/$0.20 Hold’Em online? If anything, online poker’s the better choice, because at least it can help people develop their math skills.
What about the money? Would legalizing online gambling bring state budgets back into the black? I don’t see how that’s possible. A little while ago, I took on this issue in a post called The Virtue of Vice. In the next fiscal year, states are facing a combined $89 billion budget shortfall. If you accept the $72 billion-over-ten-years figure for online gaming revenues, it should be clear that even if you took ten years worth of all of the revenues for online gambling and turned it over to the states, it wouldn’t get them out of the red, even for a single budget.
If we had total state tax revenues of $3 billion from online gambling this year, it would cover a little more than 3% of the current combined budget shortfall.
Crunching McDermott’s few numbers (states and tribes will keep $30 billion out of $72 billion) shows that he’s projecting a tax rate of nearly 42%. That’s pretty high (well above Nevada’s 6.75% rate), and I’m not sure that a fledgling industry can support that kind of tax burden. Maybe it can, but as Berkley suggests, it’s impossible to say until we actually know what the industry’s going to be like.