The Congress of the USA is considering legalizing, and taxing, an activity it banned just four years ago: Internet gambling.

Congress banned Internet gambling in 2006, but is rethinking its stand. Supporters say the shift could yield billions in taxes.

The House Financial Services Committee approved a bill that would effectively legalize online poker and other nonsports betting, overturning a 2006 federal ban that critics say merely drove Web-based casinos offshore.

The bill would direct the Treasury Department to license and regulate Internet gambling operations, while a companion measure, pending before another committee, would allow the Internal Revenue Service to tax such businesses. Winnings by individuals would also be taxed, as regular gambling winnings are now. The taxes could yield as much as $42 billion for the government over 10 years, supporters said.

The two measures — which are backed by banks and credit unions but have divided casinos and American Indian tribes — are far from becoming law. A bill to legalize online poker sponsored by Senator Robert Menendez, Democrat of New Jersey, has not yet had a hearing. The Congressional timetable has little spare room before the midterm elections, and the Obama administration has not taken a position.

But the vote suggests a willingness by Congress to look for unconventional ways of plugging holes in the budget and comes as struggling states have also been looking to extract revenue from the gambling industry, which took a hit as consumers cut back on travel and entertainment during the recession but continues to reap billions of dollars in annual profits. The committee vote was 41 to 22, with seven Republicans joining most Democrats on the panel in favor of the measure.

Last year, Colorado expanded casino hours, raised maximum-bet limits and permitted roulette and craps, while Missouri eliminated a $500 loss limit at riverboat casinos. Delaware and Pennsylvania have weighed proposals to allow the conversion of slots parlors into full-service casinos, making further inroads into the eroding Atlantic City gambling industry. Opponents, who only four years ago, when Congress was controlled by the Republicans, secured a law that banned the use of credit and debit cards to pay online casinos, said they were aghast.

 The legal status of online gambling has long been murky. The Justice Department asserts that the Wire Act of 1961 prohibits it, but prosecutors have largely left individual gamblers alone. To crack down on the activity, a 2006 law — inserted at the last minute into an unrelated bill in one of Congress’s last actions before Democrats took control — banned financial institutions from transmitting payments to and from gambling operators.

In the same year, the authorities arrested David Carruthers, a British online-gambling executive, as he changed flights at a Texas airport.He was sentenced to 33 months in prison for racketeering.

Last year, the authorities ordered four banks to freeze the accounts of online payment processors that owed money to some 27,000 people who had used offshore poker sites. But the enforcement actions have barely put a dent in the industry, experts say.

Gamblers have used online payment processors, phone-based deposits and prepaid credit cards to circumvent the ban. By some estimates, American online gambling exceeds $6 billion a year.

In 1999, the National Gambling Impact Study Commission urged the prohibition of Internet gambling. Attorney General Eric H. Holder Jr. has said he would not support efforts to legalize online gambling, a view shared by most state attorneys general.

The bill contains measures intended to protect minors and combat compulsive addiction. It would allow states and Indian tribes to “opt out,” so players from those states and reservations would not be able to make online bets. But those governments would have a potentially lucrative incentive to allow the activity since they could then collect taxes from Internet casinos.

Before voting, the committee approved amendments to delegate enforcement duties to states and tribes, continue a ban on betting on sporting events, ban marketing aimed at children, and prohibit companies that violated the 2006 ban from obtaining licenses.

Source: NYT