The Case for Legalizing Online Gambling

Federal oversight is the best way to make the industry more rational
Illustration by Bloomberg View

In a victory for fun, liberty, and sound fiscal policy, New Jersey has become the third state after Delaware and Nevada to permit online gambling within its borders. A dozen or so other states will consider doing so next year. By 2023, according to a forecast by Bloomberg Industries, annual online gambling revenue could reach $23 billion nationwide. In a just world, it would be legal in all 50 states.

Online gambling, like everything else on the Internet, is inherently interstate commerce. That makes federal regulation sensible.

Two bills in Congress are on the right track. One would legalize all forms of online gambling, except sports, and create an oversight office at the U.S. Department of the Treasury. It would also allow states to opt out of permitting such wagering. The other bill proposes a 4 percent federal tax on operators and permits states to collect an additional 8 percent in taxes. Combined, the two bills offer the outline for a rational federal approach.

Of course, there will be plenty of objections. Sheldon Adelson, who made his zillion-dollar fortune separating casino-goers from their money, has recently discovered moral objections to gambling (online, anyway). He should stop whining. Casinos—like every other industry from music to media to retail—will have to adjust to the Internet’s ruthless disruption. Some states may not like the idea, either. They might depend on tax revenue from casinos to shore up their budgets, for instance, or they might object to online gambling on moral grounds. Yet states will be able to raise substantial new revenue from online wagering, and traditional casinos will still be producing cash for a long time to come. If state officials find gambling sinful, they can always opt out.

At any rate, problem gambling and other harmful side effects will probably be easier to prevent online than they have been with casinos. If would-be players are required to open an account and have their identities verified, imposing loss limits should be fairly manageable from a technical perspective. (As with most things digital, convenience comes at the expense of privacy.) Online operators could also more easily comply with laws targeting money laundering and prohibitions against underage gambling. Again, it wouldn’t be foolproof, but neither are real-life casinos.

Finally, a federally regulated system would help move online gambling toward licensed—and taxed—domestic operators. Gamblers could be assured that their financial transactions are safe and legal and that the games aren’t rigged. Public officials, meanwhile, would be rewarded with a windfall: Taxing online wagers could lead to as much as $41 billion in revenue over 10 years.

People clearly like gambling. Letting them do so where they want would make them happy. Regulating it properly would keep them safe. And taxing it will make lawmakers smile.


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