Bill to Legalize Online Gambling Advances

Yesterday the House Committee on Financial Services approved the Internet Gambling Regulation and Consumer Protection and Enforcement Act by a vote of 41 to 22. The bill, sponsored by the committee's chairman, Rep. Barney Frank (D-Mass.), would make online gambling (except for sports betting) legal at the federal level while allowing states to prohibit betting within their borders. The committee members who voted yes (PDF) included 34 out of 42 Democrats (81 percent) and seven out of 29 Republicans (24 percent). The New York Times, which headlined its story (a bit hyperbolically) "Congress Rethinks Its Ban on Internet Gambling," portrays the development as a sign that legislators are desperate for new sources of revenue. A companion bill, the Internet Gambling Regulation and Tax Enforcement Act, would authorize the collection of fees and taxes from online gambling businesses, while players' winnings would be taxable as income. The Joint Committee on Taxation estimates that legalizing online gambling would generate $42 billion in federal revenue during the first decade.

The Senate version of Frank's bill, sponsored by Robert Menendez (D-N.J.), has not had a hearing yet.  Anti-gambling moralists nevertheless sound worried:

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. "People sometimes resort to drastic things when they are strapped for cash," said Representative Robert W. Goodlatte, Republican of Virginia, who called the new proposals "unfathomable."…

The committee's top Republican, Representative Spencer Bachus of Alabama, noting the passage of far-reaching changes in financial regulation this month, said that "after all the talk last year about shutting down casinos on Wall Street," he was incredulous that members would vote to "open casinos in every home and every bedroom and every dorm room, and on every iPhone, every BlackBerry, every laptop."

Which is the party of free markets again? Frank is no more consistent in that respect than Goodlatte or Bachus, but on this issue (and marijuana), he gets it. "Some adults will spend their money foolishly," he says, "but it is not the purpose of the federal government to prevent them legally from doing it." Or as he put it back in 2006, responding to the argument (made by Iowa Republican Jim Leach) that online gambling is worthless because it does not boost GDP:

If an adult in this country, with his or her own money, wants to engage in an activity that harms no one, how dare we prohibit it because it doesn't add to the GDP or it has no macroeconomic benefit? Are we all to take home calculators and, until we have satisfied the gentleman from Iowa that we are being socially useful, we abstain from recreational activities that we choose?…People have said, "What is the value of gambling?" Here is the value: Some human beings enjoy doing it. Shouldn't that be our principle? If individuals like doing something and they harm no one, we will allow them to do it, even if other people disapprove of what they do.

More on Frank's bill here. I analyzed the online gambling crackdown in the June 2008 issue of Reason.