Another House Hearing: Ways & Means (No Ends)

Some buzz yesterday regarding this “Hearing on Tax Proposals Related to Legislation to Legalize Internet Gambling” in which the House of Representatives’ Committee on Ways and Means discussed various topics, including proposed bills to license, regulate, and tax online gambling in the U.S. Much of that buzz seemed quite positive. That is to say, we heard a lot of “this is good for poker” talk, primarily inspired by what seemed to be a renewed, sincere focus of legislators on the subject of online gambling.

Have to say, while I found the hearing somewhat engaging, I didn’t really see a great deal to get excited about. In truth, the whole hearing struck me as a largely theoretical discussion with not a lot of practical value, particularly with regard to that fast-approaching deadline for compliance with the Unlawful Internet Gambling Enforcement Act of 2006 -- coming on June 1, 2010.

That’s real, I’m afraid. The UIGEA is law, and banks and other financial institutions will have to comply with it in less than two weeks. The rest of this stuff has a big “what if” hanging over it.

Importantly, the point of yesterday’s hearing wasn’t to discuss legalizing the operation of online gambling sites in the U.S., but rather “proposals related” to legalizing online gambling -- primarily the idea of how to tax it. That’s what the Ways and Means Committee does. They’re all about writing tax laws. Thus, as the opening statement of the committee chairman Sander Levin (D-MI) indicates, “the issue of whether Internet gambling should be legal [was] not the subject of this hearing. That debate will take place in another venue outside of this Committee’s jurisdiction.”

Unlike earlier hearings, then, such as have taken place over at the House Financial Services Committee (the most recent being in December 2009), there was an intention yesterday to focus more on how legalized online gambling might work in the U.S. rather than to open up the question of whether or not the U.S. should get into the game and allow (with licensing and regulation) online gambling sites to operate in this country.

In other words, unlike in December, where it was H.R. 2267, the Internet Gambling Regulation, Consumer Protection, and Enforcement Act proposed by Rep. Barney Frank (D-MA) that occasioned the hearing, here it was the proposed bill of Rep. Jim McDermott (D-WA), H.R. 4967, the Internet Gambling Regulation and Tax Enforcement Act, that was given more attention.

Of course, as McDermott (left) pointed out in his statement, his bill “would work in tandem with the bill introduced by Congressman Frank” and is therefore meaningless without Frank’s or some other licensing and regulatory scheme for online gambling already being in place. And, really, there’s no discussing this issue without acknowledging the larger debate -- that is to say, it is of limited value to talk about how licensing, regulation, and taxation would work without having first settled the matter of whether or not legislators want to license, regulate, and tax online gambling.

So that necessarily came up yesterday, too -- namely, talk of Frank’s bill (which he also summarized) and some debate over whether or not the U.S. really wants to make it legal for online gambling sites to operate within its borders.

Incidentally, as has been the case all along, there was a lot of fuzzy language yesterday about “internet gambling” being legal or illegal. See, for example, Chairman Levin’s statement above where he says the meeting wouldn’t be over “whether Internet gambling should be legal.” To be precise, the issue concerns the legality of operating online gambling sites in the U.S., not the legality of online gambling per se. The former is clearly unlawful at present; i.e., if you are located in the U.S., you cannot legally start up an online gambling site. The latter is less clear; i.e., if you are located in the U.S., you can (for the most part) gamble online.

Anyhow, like I say, the debate over whether or not the U.S. should allow sites to provide ways to gamble online did come up yesterday, despite the Chairman’s saying it wouldn’t. It had to.

And so we heard Rep. Bob Goodlatte (R-VA) in his statement expressing horror at the notion that the country would stoop to sanction online gambling in this way, finding it “unfathomable that Congress would consider legalizing a currently illegal activity that imposes harm on the most vulnerable members of our society just to raise money for more big government spending.”

Goodlatte (left) also brought up the sad case of a constituent’s son who, having built a sizable debt by gambling online, took his own life, adding that “financial ruin and tragedy are not uncommon among online bettors.” Sort of recalled Rep. Spencer Bachus (R-AL) of the House Financial Services Committee misrepresenting studies about gambling and suicide and yammering on about how “internet gambling is the crack cocaine of gambling.” Bachus had a chance last week to share that observation with ABC News, something he’s gleefully said before in committee hearings and elsewhere.

Goodlatte brought up a much more salient point when he noted that “there is also bipartisan opposition in Congress to efforts to legalize illegal Internet gambling activity” (i.e., to legalize online sites in the U.S. providing a means to gamble within a licensed, regulated, and taxed framework). That’s why I see yesterday’s hearing as mostly a theoretical exercise. We can talk all we want about how taxation might work within some sort of federal regulatory and enforcement framework, but if legislators aren’t going to vote to implement such a framework, it’s really just a lot of whistling in the dark.

As I say, there was a lot of positive reaction to the hearing. The Poker Players Alliance liked it, saying that the “hearing underscores the increasing Congressional interest in a license and regulated online gaming environment.” Michael Waxman of the Safe and Secure Internet Gambling Initiative also suggested that the “hearing showed is that there has been significant progress made in educating members of Congress about this issue,” characterizing the hearing as “a home run” (as reported by PokerNews).

I think those who want to see some sort of licensing and regulation were encouraged because despite the occasional pathos-filled non sequitur from Rep. Goodlatte, the hearing was characterized by a lot of sincere discussion about licensing and regulating online gambling.

But it’s all theoretical -- all a big “what if” -- and in fact that’s why I think the discussion went the way it did. That is to say, the only way legislators can talk directly about licensing and regulating online poker is to set the primary question of whether or not it should be done aside. As Chairman Levin made clear, the question of whether or not to license and regulate online gambling was not within the Ways and Means Committee’s jurisdiction. That’s why they could talk so directly about it. (Maddening, I know.)

Bill Rini’s piece from last week about “The Future of Online Poker” convincingly argues that any such licensing and regulation is still way, way down the road. I think the hearing yesterday, rather than providing any real encouragement to the contrary, only reinforces Rini’s argument.

Sure, there’s been some progress. But we’re still miles and miles away from anything tangible. Meanwhile, the UIGEA is right up ahead at the next intersection. Nothing theoretical about that.