The first insta-analyses of Harry Reid's proposed legislation to license and regulate online poker are here:
http://ftrain.blogspot.com/2010/12/quick-and-dirty-summary-of-reid-poker.html
http://pokerati.com/2010/12/03/summary-of-the-proposed-prohibition-of-internet-gambling-internet-poker-regulation-and-uigea-enforcement-act/
http://pokerati.com/2010/12/03/reid-online-gambling-bill-inside-the-draftuigea-strengthened-foreign-sites-wanting-us-license-must-obey/
http://espn.go.com/sports/fantasy/blog/_/name/poker/id/5891943/reid-bill-change-industry?ua
http://www.bjnemeth.com/blog/2010/12/3/bjs-early-analysis-of-harry-reids-lame-duck-online-poker-bil.html
Best commentaries I've seen so far about what all this means:
http://www.kickasspoker.com/blog/reid%e2%80%99s-proposed-online-poker-bill-exposes-political-hypocrisy/
http://www.billrini.com/2010/12/05/gambling-industry-writes-harry-reids-online-gambling-bill/
Worst legal commentary so far:
http://www.gamblingreviews.com/news/more-info-on-harry-reid%E2%80%99s-gambling-regulations/1720/
This is written by one Jeremy Schrute, about whom I know nothing, except that he has no idea what he is talking about. In the first place, his article, dated today, was apparently written in complete ignorance of the fact that the draft bill was posted on the Review-Journal's web site Friday. Excellent situational awareness there, Mr. Schrute. Granted, there may be other draft versions, and the whole thing remains the proverbial moving target, subject to ongoing revision. But it's just utterly irresponsible journalism to post commentary about a bill without having discovered that it has been available online for three days, and that others have already written about the draft.
"There isn’t a whole lot of information on Harry Reid’s proposed online gambling regulation, partly because the bill is so secretive." Yeah, so secretive that it can only be found on the web site of the state's largest newspaper.
Mr. Schrute writes, "Most U.S. states don’t have any laws specifically regarding online gambling, but a few states, such as Washington, specifically ban the action. It seems that Reid’s bill would attempt to override Washington’s ban, though from a constitutional standpoint Washington’s state law trumps federal law. Because it doesn’t involve interstate activity, the federal government has no jurisdiction. That problem could be solved if Reid’s bill has an opt-out clause, though, where individual states can opt out of legalizing online gambling."
Again we have the problem that the author hasn't looked at the draft bill and therefore doesn't know that there is an opt-out clause. But the problem goes deeper than that. His understanding of how the interstate commerce clause has been applied by courts is lacking. Back in 1942 the Supreme Court ruled that a famer growing wheat on his own land for his own use could be regulated by Congress under the interstate commerce clause--even though he wasn't selling it--because growing his own wheat instead of buying it on the open market affected the national wheat economy. That case is hardly dead law; it was the main precedent behind the Court holding in 2005 that the federal ban on marijuana was applicable to a California man who was growing pot for his own use in accordance with state law. Never mind that he wasn't selling it, so that it wasn't commerce, nor that the stuff was grown, harvested, and used entirely in California, so that it wasn't interstate; still, the interstate commerce clause applied.
Now, I happen to think that both of these decisions are dead wrong. But Mr. Schrute appears to have no knowledge of them. These cases are at the center of much of the litigation currently going on about whether the federal government can require individuals to purchase health insurance; there was a court decision on that just last week.
My point is not to say that it's obvious that Reid's bill--whether or not it has an opt-out clause--is clearly constitutional. My point is only that Mr. Schrute's analysis of how the commerce clause works is hopelessly, embarrassingly simplistic and ignorant.
Leaving aside Mr. Schrute's piece, what I don't get about coverage in the last few days is how some people seem to think that Reid's bill is good for online poker players. Wicked Chops Poker, for instance, wrote that it made them glad they had voted for Reid in the recent election. Prof's Poker Blog gushes, "Legal Internet poker will produce billions in tax revenues that will be shared by states and the federal government while providing players a high degree of security through time-proven intense scrutiny of the legal Internet poker rooms. Online poker players will enjoy a level of protection from cheats and scams plus a guarantee of honest games, something that has been missing from current offshore Internet poker rooms. Give 'em Hell Harry!"
I have explained until I'm blue in the face why I'm convinced that federal taxation and regulation of online poker would be a horrible blow to the industry, rather than the boon that many blithely assume; see, e.g., here and here and here. The current proposal does not one thing to assuage my fears. On the contrary, it reinforces them. They will start with a 20% tax (though, as F-Train notes, it's unclear whether this means a 20% rake or a 20% tax on deposits). Would you care to guess which direction the rate will tend to go from there? Add to that at least a 15-month period during which there will be no legal online poker provided by anybody, and at least a 39-month period during which current operators (Stars, Full Tilt, Bodog, UB, etc.) will be unavailable here. Add to that reports made directly to the IRS on exactly how much each player won and lost. Read "Bill Rini's" back-of-the-envelope calculations about how much this ban would cost the biggest current operators.
What Prof crows about as tax revenue for the state and federal governments translates to me as money out of my pocket. It is beyond my comprehension how he thinks that security will be enhanced by excluding from the market the two companies (Stars and FTP) with the most worldwide experience in providing a secure game and leaving the field exclusively to operators who have never done online poker for real money before. How in the hell does that give us "time-proven" security? If he somehow believes that a federal imprimatur guarantees, ipso facto, an absence of fraud, he must have never heard of what goes on, say, in the highly regulated securities industry.
This bill is not good for players or for current operators. It is good only for the big Nevada casinos who are overtly favored in every aspect of the bill's structure, and for the Nevada gaming commission's revenue. I cannot imagine how any thinking person could conclude that it is good for poker overall.
Addendum, December 7, 2010
See F-Train's update here.
Monday, December 06, 2010
No thanks, Harry
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7 comments:
I think that the best way to enforce taxation rules to the online poker community is through the payment processors, using online brokerages as prime example.
You deposit money into your brokerage account, you invest in a security, when you sell said security, the brokerage account tracks the taxable consequences and sends you (and the IRS) a tax form listing the applicable gains and losses for the year at tax time.
For poker, it should be the same. You deposit into the payment processor (Neteller, Moneybookers, etc...), you then deposit to a site (equivalent to buying shares), when you withdraw from the site (equivalent to selling shares), you are applied a gain or a loss to your cash out, and this is listed in a tax form at the end of the year, which you use to file your return.
The key would be that the poker sites COULD NOT allow withdrawal of funds from another method than your brokerage (i.e no cheques in the mail to circumvent this), and the brokerages would need to be able to track your holding value at each site, to be able to adequately determine your gain/loss on your deposit.
So, for example, you deposit $1000 to PokerStars, and over the course of time you lift that up to $2000. If you cashout for $1000, it is the equivalent of a cashout of $500 in principal, and $500 in profit, and you are taxed on that $500 only.
It's just that simple.
Of course, if you just abolish the taxation of gambling winning and losses, then it's even simpler. In fact, I'd be surprised if the government actually makes money from that item. I would guess that more people lie and inflate losses and minimize reporting of wins, that the net sum of that field on all tax returns is greater than 0.
I think this thing is VERY fluid and that the final version will look WAY different than what we are seeing. I agree that we should be very suspicious of an escalation of gov't involvement but the status quo is not a long term solution.
Good post. The only issue I would bring up is that B&M operations work off of the notion of a level playing field for all players. FullTilt and Stars could care less about a level playing field. They could stop the massive data dumps that occur but do not because it is bad for marketing. Any U.S. based B&M operation is not going to allow players historical data to be shared.
Beyond that, your post is spot-on and I totally agree with you regarding the tax issues.
This is good old-fashioned protectionism. Nothing more than American corporations eliminating the competition through bribing lawmakers.
What's good for poker is not an issue here.
good post...most players don't think enough about the drag (rake NOW taxes)casinos are killing the lower limit limit games with a $6 drop(jackpot is a drop)ah for the days of 10-20 holdem with a 2.50 max rack and .50 for the dealer....I'm an old nit you need the low limits to feed the bigger games
Thanks Grump. I'm saddened that this bill is getting any support. The end of online poker in what, ten days, until Spring of 2012? And then only if you are lucky to life in an opt-in state? (And that status can change with every election.) Just horrible compared to the status quo.
I could live with everything else if the tax rate wasn't so high. Once figured into the ROI, it'll make the online games unbeatable for all but the elite players at any level, eventually scaring away the rest and killing off the action.
And Eddie, your analogy doesn't work. The IRS considers each session the equivalent of a buy/sell transaction, so reporting by year would not be sufficient. And once the site are legalized, there's no reason to even have a payment processor.
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