A marathon two-and-a-half hour hearing in the House Ways and Means Committee on Wednesday morning focused on legislation to tax internet gambling. Gracing the floor of the Committee were internet gambling activists Barney Frank (D-MA) and Jim McDermott (D-WA) as well as Unlawful Internet Gambling Enforcement Act (UIGEA) crafter Bob Goodlatte (R-VA).
Ironically, Goodlatte mislabeled the UIGEA the “Uniform Internet Gambling Enforcement Act” on numerous occasions despite sponsoring the controversial bill with multiple carve-outs four years ago. Frank had to depart at 10:00am ET for a markup hearing and gave his testimony first. Frank told the Ways and Means Committee’s assembled membership, “We do know that gambling will go on in America. The question is should we continue to give those who gamble the complete immunity from taxation. We talk about avoiding teacher layoffs and this would be a way to do that.”
The ranking minority membership questioned the importance of discussing internet gambling when the latest jobs report showed nearly a 10% unemployment rate nationwide. McDermott responded, “Regulating internet gambling would create jobs. An April 2010 study found that it would mean 32,000 additional jobs. Regulation and taxation has proven to be a better policy for our country when it comes to alcohol and the same will be true for online gambling.”
Goodlatte, one of the primary architects of the UIGEA, explained that creating a federal regime of regulation and taxation is contrary to his beliefs in states’ rights: “Traditionally, states have had the authority to permit gambling that occurs in their borders. HR 2267 turns states’ rights on their heads. In addition, the revenue estimate by the Joint Committee on Taxation is premised on trumping current state laws.”
Goodlatte noted that professional sports leagues like the NFL and Major League Baseball have sent letters voicing their opposition to HR 2267, a bill that will likely be marked up in the House Financial Services Committee in July. HR 2267 creates a licensing and regulatory framework for the internet gambling industry in the United States. Its tax companion, McDermott’s HR 4976, was the subject of debate on Wednesday.
A flood of questions came in from members of the Ways and Means Committee, including Charles Rangel (D-NY), Dave Reichert (R-WA), and Earl Blumenauer (D-OR), who admitted he may have made a mistake voting for the UIGEA in 2006: “I voted for it the first time, but it’s probably not practical and it’s probably inconsistent.”
Meanwhile, Dean Heller (R-NV) grilled McDermott on HR 4976’s proposed tax on internet gambling deposits, which he claims is unprecedented and not reliant on winnings. McDermott responded with his rationale: “When people put money into an account, they have to put in their credit card number. At that point, we said let’s tax it right there. This is how we chose to do it. The operators operating offshore weren’t opposed to this.”
Also weighing in was Shelley Berkley (D-NV), who once sponsored a bill calling for a large-scale internet gambling study. However, Berkley, whose experience lies with land-based casinos in Nevada, is an opponent of McDermott’s bill. She told the Committee, “The only logical approach is to view this as two separate issues. I applaud my colleague’s search for revenue, but this is not the place to find it or the method to get at it.”
Linda Sanchez (D-CA) focused on the benefits of U.S. oversight of the now-offshore industry: “The only way to get our country back on sound financial footing is by cutting expenses and raising revenue. Today, we’re discussing a possible revenue stream. We can provide better consumer protections by bringing this activity under American supervision while at the same time providing a revenue stream.”
Then, Chris Wagner from the Internal Revenue Service (IRS) and Charles Steele from the Financial Crimes Enforcement Network took to the floor. The former outlined the current tax structure for the gambling industry, while the latter admitted that he had not yet read McDermott’s legislation.
Meanwhile, Devin Nunes (R-CA) took time to call out nonprofit corporations illegally sponsoring political ads in order to make the IRS aware of the infractions. In response, Rangel and other members took offense to Nunes’ unrelated comments.
Berkley shifted the conversation back to internet gambling, asking Wagner if bills like HR 2267 and HR 4976 would increase the burden on the IRS. Wagner responded, “We do know that a lot of the regulating we do today is for legal gambling that takes place anyway, [so] we do not see a significant change.”
While the second panel was present, Heller once again took time to question the logic of a deposit tax. McDermott retorted, “The alternative to a deposit tax would be a gross gambling tax. You can do that in a brick and mortar casino. With the internet, you don’t know where anyone is, so you have to find an alternative to a gross gaming tax. This is the one, when talking to the industry, that’s the best way to do it.” Heller followed up by asking whether McDermott had talked to major brick and mortar casinos, but McDermott skirted the question.
Stay tuned to Poker News Daily for industry reaction to Wednesday’s House Ways and Means Committee hearing on internet gambling.