The Unlawful Internet Gambling Act and the Tax Revenue the United States Government Could Have Had

I. Introduction

people who gamble on-line will tell you that October 13, 2006 truly was
an unlucky day. On that Friday, President Bush signed into law the
Unlawful Internet Gambling act.[1]. The bill makes it illegal for banks
and credit card companies to transact with online gambling
companies.[2] By preventing banks from allowing deposits into gambling
sites, the bill hopes to prevent people from partaking in on-line
gambling. The question many people have is why the United States would
outlaw internet gambling when it could have regulated the industry and
benefited from the tax revenue it would have received?

II. Analysis

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

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,, October 13, 2006 at 

[2] H.R. Conf. Rep. No. 109-__, available at  (report number pending).

[3] Walter Jefferson, Online Gambling Legislation in the United Kingdom, at

[4] Id.

[5] Id.

[6] Jeremy Herron, Internet Gambling Still Expected to Grow, Associated Press, October 16, 2006, at 

[7] Wikipedia, Online Gambling, at  (last visited October 25, 2006)

[8] Gambling Shares Tumble on U.S. Move, Reuters, October 2, 2006, at 

[9] Supra note 6

[10] Id.

[11] Allyn Jaffrey Shulman, A Comprehensive Analysis of the Internet Gambling Prohibition Act, at 

[12] Allyn Jaffrey Shulman, What’s NOT Included in Anti-Gambling Legislation,, at 

[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,, at 

[19] Allyn Jaffrey Shulman, Online Poker Sites: Who’s In and Who’s Out?,, at