(John 1:23, King James Version)
So Barney Frank has now introduced his bill to license, regulate, and tax online gambling. People and entities that I normally like and respect are falling all over themselves in celebration--for example, here and here and here. None of those sources, nor even the more journalistic and ostensibly objective story on PokerNews (here) bothers to suggest or quote anybody suggesting that the whole thing might be a really, really bad idea for the poker industry in the long run.
I'm telling you that it is, even though I expect my handwringing to be dismissed with amusement and/or scorn by nearly everyone in the poker community.
First is the general principle. We should be free to play poker (or blackjack or anything else) with our own money from the privacy of our own homes. Period. The word "free" there does not mean, "free, as long as we're using a site that meets the government's approval." It does not mean, "free, as long as both we and the sites pay onerous taxes." It does not mean, "free, as long as our state governor has not decided to 'opt out' of the federal system." It means that we should be left the hell completely alone. This is not an area in which the federal government has any constitutional authority to act, nor is it one in which the federal government has any particular expertise. Do you really think that PokerStars and Full Tilt will suddenly become better-run businesses than they currently are because they submit to several thousand pages of federal regulations?
Second is the pragmatic issue. I would wager all that I'm worth on this proposition: online poker will become less profitable, not more profitable, as a long-term result of this kind of legislation.
I have not yet read anything about what will happen if a site decides not to seek federal licensing. For example, what if PokerStars decides that it sees more disadvantage than advantage to submitting to all the taxes and fees and regulations? They might say, "Y'know, we're doing OK as it is. People in the U.S. can deposit directly from their checking accounts and start playing in a matter of minutes. We can't be kicked out of a state by an anti-gambling governor. We aren't paying U.S. taxes, and don't have to collect personal income tax withholding for our customers. We don't have to open our books to the feds. Our anti-fraud and anti-laundering security is already as tight as anybody knows how to make it. There just isn't much reason for us to change anything."
I don't know whether the Frank bill explicitly addresses this, but sooner or later, the powers that be will decide that this is intolerable, and either attempt to stop and/or prosecute evaders under extant legislation, or pass new laws that make it a crime to offer--and maybe even participate in--online gaming that is not federally licensed. It is a universal truth that governmental licensing bodies will not long tolerate those who sidestep them.
If you have the choice of playing on a federally licensed site or a place like Stars that has decided not to comply with licensing (and I'm just speculating that that will be the case; I have no information one way or the other), it will obviously be more profitable to play on a non-licensed site, because it will have far less overhead operating cost and can therefore charge less rake. The government will not put up with that for very long, I can assure you. The result will be that people like Frank and Alfonse D'Amato will do a 180-degree turn, and in a short time be advocates for prosecuting the scofflaws who are not compliant with the system they have set up--all in the name of "protecting the public," of course. This could easily include making it a crime not only for such sites to operate, but for you personally to play on them.
Furthermore, history shows that the rate of taxation will ratchet up and up and up, increasing the pressure on profitably like an anaconda increasing the tightness of its grip every time its victim exhales. Have you noticed what has happened with liquor and tobacco taxes over the decades? The so-called "sin taxes" are the easiest ones for politicians to turn to when they need yet another junkie's fix of a revenue increase. If you think it's hard to win at online poker big enough to beat the rake, try playing well enough to beat the rake plus, say, a 25% tax on every pot. Of course that's not what it will be to start off with, but give it time. There is no doubt in my mind that the rate will end up on the far side of the Laffer curve. It is the nature of govenments to act that way. They can't help themselves.
I'm telling you, folks, this is wrong and dangerous. I'm not sure I can come up with enough analogies and metaphors to convey it. It's letting the camel's nose into the tent. It's sleeping with the enemy, making a deal with the devil. It is like paying protection money to the Mafia. It is feeding a few drops of blood to the carniverous plant Audrey. It is like planting kudzu in your garden.
Those who are now welcoming the feds as a partner in online poker will, I fear, come to rue the day and wonder how they could have been so short-sighted. Federal licensing, regulation, and taxation will act like a slow poison, perhaps not quite killing online poker, but certainly leaving it far more weakened and unprofitable than it would be if it were just left completely alone (as it should be), and more than it would be if things were just left the way they are now (which is hardly ideal, but satisfactorily healthy and easy to deal with).
Look, I've ranted about this stuff before, here and here and here. I'm running out of ways to express what I foresee happening, so I'll repeat my favorite cinematic analogy from the last-cited post:
To continue my string of bad movie images and analogies, think of the poor
souls in "Dracula" (I'm thinking specifically of the 1992 Francis Ford Coppola
version, though many others show the same thing) who are kept by the
vampires as a source of ongoing meals, rather like farm animals. They are barely
alive, left with just enough blood so that they don't die and can be bled again
later. That is what I am convinced would be the end-game of federally regulated
online poker--taxed to within an inch of its life, marginally profitable for
anybody except the feds.
All of this goes way beyond the relatively petty disputes that I expect to see garner most of the attention: the state opt-out provisions, the details of how taxes and withholding are done, etc. None of that matters much to me; it's like the proverbial rearranging of the deck chairs on the Titanic. The whole business is a disaster waiting to happen, and it seems that virtually everybody in the poker world is somehow blinded to that.
Sadly, I don't expect anybody to pay me any mind. They didn't listen to Noah, either, when he told them that those were not merely spring showers. But when what I have foretold comes to pass, you won't be able to say that you weren't warned.
See the first comment. Jim S raises thoughtful points that I think are worthy of response.
1. Jurisdiction. This isn't the place for a drawn-out debate about the proper scope of congressional power under the commerce clause. I'll just say that I am persuaded that the majority of what Congress currently does under the claim of regulating interstate commerce is constitutionally infirm (despite the Supreme Court capitulating to Roosevelt's court-packing threat and thus basically waving the green flag for Congress to do whatever the hell it wants to these days). I am persuaded by, e.g., the work of Randy Barnett in his fine book, Restoring the Lost Constitution: The Presumption of Liberty. (See especially chapter 11, "The Proper Scope of Federal Power: The Meaning of the Commerce Clause.") I fully recognize that this is a minority view, but I'm convinced that it is legally, philosophically, historically, and pragmatically correct.
2. Non-licensure. I'm not sure why Jim thinks I'm "misguided" here. I said I didn't know whether there was explicit prohibition of operating a non-licensed online gaming operation, but that if there weren't, there surely would be before too long. The upshot is that supporters of this legislation (assuming Jim is right that a provision similar to the one he quotes from a previous proposal is in the current bill) have to agree that they want the operators of, say, PokerStars to be thrown in federal prison if they refuse to either quit accepting U.S. players or submit to the licensure process. (I'm guessing, without bothering to check, that, as in previous versions of such legislation, that would include moving their servers and management to the United States.) People who think that have a very, very different concept of what constitutes "liberty" than I do.
3. Taxes. Again, I haven't checked the details of the new Frank bill for what, if any, new fees and taxes are contained therein. But I would be stunned if there were none.
It is clearly erroneous, though, to say, as Jim does, that "bill supporters who talk about collecting more tax revenues are talking about collecting taxes that are owed today but are not being paid because the IRS doesn't know they're owed." While that's included, it's definitely not all that is being asserted. The most frequently cited source for claims about tax revenue being missed is the PricewaterhouseCoopers report of December, 2007. You can see the executive summary of it here. It says, "In each case, about 56 percent of the revenue is attributable to individual income taxes, 22 percent is due to the wagering tax, 18 percent is due to the licensing fee, and 4 percent is due to the corporate income tax." Additionally, the study assumed that each state would be free to impose its own specific taxes on the sites, whether or not the businesses had a physical presence in that state.
Incidentally, I suppose that some readers will accuse me of laziness for not bothering to research in more detail what Frank's bill does and does not contain. OK, consider me guilty, but with this explanation. First, whatever it says is obviously subject to enormous change as it works its way through the enactment process. More importantly, though, I just don't care much. I am philosophically so utterly opposed to the whole idea of federal licensing, regulation, and taxation that the details of any particular scheme simply don't matter much. I remember once reading from Isaac Asimov that on a regular basis he received earnest schematics of inventors' perpetual motion machines, or elaborate "proofs" about squaring the circle or the invalidity of the second law of thermodynamics. He said, sensibly, that he wouldn't bother finding the flaw in the arguments--and in some instances he might not be able to. Still, he knew that a flaw must be there, because of how rigorously and thoroughly the contrary facts had been established. It's kind of like that for me here. I don't need to dissect the legislative language to know that the whole thing stinks to high heaven. Put the game I love under the thumb of the feds? I'm agin' it, no matter how much Lysol Frank and his supporters might spray trying to cover up the stench.
Now, if y'all will excuse me, I need to go do a little bolstering of the defensive perimeter on my cabin in Montana.