The first thing taught on the first day of an Income Tax class is that tax base times rate equals revenue (tax base x rate = revenue). Congress can increase tax revenue in one of two ways; increase the tax rate or increase the tax base. Increasing the tax rate will get everyone’s attention, and since no one likes taxes, Congress should be in no hurry to raise the tax rate. However, by increasing the tax base Congress can still raise tax revenue without drawing so much negative attention. Regulating internet gambling could be a great opportunity for Congress to increase the tax base and garner more revenue.

Many European nations, including the United Kingdom, have for some time been regulating internet gambling.[3]. The regulation of gambling in the United Kingdom has meant that the government has benefited from increased tax revenue, because the gambling companies are treated just like ordinary business and must pay taxes.[4]. In addition, once the United Kingdom began regulating online gambling, several companies that had previously been overseas brought their operations to the United Kingdom, further increasing the tax revenue to the British government.[5].

Online gambling was a $12 billion industry in 2005, and is expected to have revenue around $15 billion in 2006.[6]. The companies that make up this industry are generally located in gambling friendly countries such as Costa Rica and England.[7]. Companies such as Sportingbet PLC are publicly traded on the London Stock Exchange.[8]. By not accepting online gambling, the United States has closed its doors to businesses that operate gambling websites, even though US gamblers account for about 50% of the internet gambling market.[9].

By regulating internet gambling, instead of attempting to outlaw it, the United States could stop itself from foreclosing a highly taxable industry. Countries that have chosen to regulate internet gambling are receiving billions a year in tax revenue.[10]. By regulating internet gambling, the United States would attract gambling companies onto their shores where they could legally operate just like any other business. Such regulation would also work to quell the fears of those who feel that online gambling is dishonest or unfair.[11]. Regulation could work to provide a safe means for people to gamble on-line, while at the same time allowing Congress to tax a highly profitable and popular industry.

Unfortunately, Congress has failed to take steps to regulate internet gambling, choosing instead to try and outlaw it. However, the current legislation will fail to accomplish congress’s intended goal preventing people from partaking in online gambling. The current legislation will prevent banks and credit cards from sending money to online gambling companies.[12]. The bill does not explicitly prevent a person from participating in online gambling.[13]. Rather, it just makes it more difficult for a person to make deposits into an online gambling account.[14]. Moreover, the Act does not prevent the use of third party intermediaries in the process of funding online gambling accounts.[15]. One such intermediary is NETteller.[16]. NETteller is a financial institution that allows people to deposit money that the can use online to buy merchandise, goods, or even fund their online gaming account.[17]. NETteller has come out and said that they will continue to do business with US customers.[18]. What this means is that customers can deposit money into their NETteller accounts, and then fund their online gaming accounts, thus never having to use their bank accounts directly. Furthermore, many online gambling sites have said that they will not leave the US market and will continue to accept deposits from US customers.[19].

III. Conclusion

It appears that US gamblers will be able to continue using online companies for their gambling activities, because they have ways to get around the limits placed on banks and credit cards from funding online gambling accounts. This means that gambling companies will continue to operate in overseas markets just like any other business and will pay taxes to the host country. If the United States took the steps to regulate the thriving online gambling industry, it would attract numerous gambling companies that would want to establish operations in the lucrative US market. Attracting these businesses will allow the United States to garner billions of dollars in tax revenue. All the current legislation does is take money away from the United States and allow those countries that have chosen to regulate to benefit.

[1] Bob Pajich, President Signs Unlawful Internet Gambling Act, Cardplayer.com, October 13, 2006 at http://www.cardplayer.com/poker_law/article/1491 

[2] H.R. Conf. Rep. No. 109-__, available at http://media.cardplayer.com/pdf/h/hr49543_portscr.pdf  (report number pending).

[3] Walter Jefferson, Online Gambling Legislation in the United Kingdom, at http://www.betfactor.com/articles/uk_gambling.shtml

[4] Id.

[5] Id.

[6] Jeremy Herron, Internet Gambling Still Expected to Grow, Associated Press, October 16, 2006, at http://biz.yahoo.com/ap/061016/market_spotlight_internet_gambling.html?.v=1 

[7] Wikipedia, Online Gambling, at http://en.wikipedia.org/wiki/Online_gambling.  (last visited October 25, 2006)

[8] Gambling Shares Tumble on U.S. Move, Reuters, October 2, 2006, at http://www.cnn.com/2006/BUSINESS/10/02/gaming.stox.reut/index.html 

[9] Supra note 6

[10] Id.

[11] Allyn Jaffrey Shulman, A Comprehensive Analysis of the Internet Gambling Prohibition Act, Cardplayer.com at http://www.cardplayer.com/magazine/article/15416 

[12] Allyn Jaffrey Shulman, What’s NOT Included in Anti-Gambling Legislation, Cardplayer.com, at http://www.cardplayer.com/poker_law/article/1428 

[13] Supra note 2

[14] Supra note 11.

[15] Id.

[16] Id.

[17] Id.

[18] Lisa Wheeler, NETteller Will Continue to Do Business with America, Cardplayer.com, at http://www.cardplayer.com/poker_law/article/1483