Politics and Poker: The Next Sin Tax?

Denis Campbell
Editors' note: Contributing columnist Denis Campbell brings an independent and experienced eye to poker's political scene. Campbell has worked closely in the past with former Cabinet Secretaries in the Carter and Clinton administrations, Ambassadors and members of Congress. He offers commentary on US and UK politics for the BBC and Huffington Post. Here, Denis offers his insights on matters affecting poker. Denis' views do not necessarily reflect those of PokerNews.

Last week, Ohio Governor Ted Strickland placed himself at the front of the Obama infrastructure and state aid queue, saying his state needs an immediate infusion of $5 billion to survive a projected budget shortfall of $7.3 billion, this despite laying off 3,000 state workers.

His state, like most others, is looking to fill budget holes anyway they can. Gaming (both online and in casinos) presents tax/revenue opportunities that "sin" taxes – alcohol and cigarettes – no longer fill. Even in today's economy, cigarettes face state and local tax increases of between $.30 and $1.00 per pack raising the price to $3.00 on average and $25-$30 a carton. An addict will cut back under those types of price increases.

The urgent need for revenue has created a flood of state gaming tax proposals and could mean swift action on the repeal of UIGEA (Unlawful Internet Gambling Enforcement Act) via legislation currently sitting in Barney Frank's House Banking Committee. Repeal under a new administration and Democratically-controlled Congress could zoom to the top of a very full list of priorities sooner rather than later. If it doesn't, states like California will move it to the top of their lists... and therein lies a danger.

States will move quickly to generate tax revenue and fees from online gaming but are not structured to handle the complexity. Can you imagine online sites setting up different rakes for each state depending on where you live, or charging you a higher per-game entry fee to play from, for example, California or Kentucky, based solely on your location? If you think you have no privacy now, can you imagine what they will need to do to charge the correct tax rate across 50 states and the District of Columbia?

Being careful what one wishes for could become the guiding rule for a return to online gaming in the US. The barriers to market entry for companies based in Malta, Bermuda, Channel or Cayman Islands could become even more difficult than they currently are.

Also, do not underestimate the power and deviousness of the American far right. While crippled in the last election, they are still a force to be reckoned with on their base's white-hot morals issues, which also include abortion, immigration, gaming, state religion (Christianity), homosexual marriage and adoption. They were, for example, unable to repeal Roe v. Wade so instead they introduced a potentially crippling rule allowing health care professionals to use their conscience and overrule their medical responsibility to provide legal health services such as abortion or birth control.

These are very smart adversaries who have learned through failure to never attack the real issue. Instead, UIGEA attacked the payment system, making that illegal, not gambling itself. If you cannot collect money, you shut down online gaming. Look for them to find and exploit a similar Achilles heel in the future.

Another problem within states is the intricate maze of controlling authorities. Historically anti-gaming Florida (except on the federally controlled Seminole Indian reservation), is a state where commercial gaming is regulated by: the Division of Pari-mutuel and Wagering within the Department of Business and Professional Regulation (DBPR), The Florida Lottery, and the Office of the Attorney General of Florida. I kid you not. Each has an interest in stopping gaming separate from Governor Crist's desire to raise funds. Racetrack owners and the lottery don't want competition and the Attorney General has to run for re-election in an anti-gaming state. Add in the repeal/restructure of UIGEA (at the federal level) on top of that and it becomes a volatile mix.

Also, watch for slot machine manufacturers to gain an online foothold as they eye a potential windfall. Bally Technologies unveiled a "slot machine built for two" last month at the global Global Gaming Expo in Las Vegas. The company is hoping the concept will catch on as "an ingenious way for people to share the casino gaming experience."

Hmm, people playing against each other online at slots, draw poker, and no-limit Texas hold'em? One could ask if the introduction was a case of suspicious timing, or was it a marketing masterstroke where quick adaptability helps to ensure one's survival? Goldman Sachs' gaming analysts already project that Bally's and other manufacturers will gain mightily as states look to plug shortfalls with wider, more accessible gaming.

So it could be a good year for online gaming, just heavily regulated and taxed. And punters can expect to pay much more for the privilege.