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McDermott: Generate Income for a Good Cause

Last year, I introduced legislation that would tax Internet gambling and generate as much as $40 billion for the federal government and $30 billion for state governments. It’s a companion bill to legislation introduced by Rep. Barney Frank (D-Mass.) that would legalize and regulate Internet gambling, which, save for a handful of exceptions, is banned.

Since introducing the bill, I’ve had countless people ask me why this was something I wanted to address. And while there are several reasons — not the least of which is that it’s common sense to fix a policy that has completely failed — the most important to me is that much of the revenue would go to children in foster care.

Helping America’s foster youth has always been a priority for me, and while we have made a lot of progress over the past few years in passing legislation that improves the foster care system, we still desperately need to help this vulnerable and voiceless population. When the idea of legalizing and taxing Internet gambling came up last year, I knew we had an opportunity to generate considerable revenue and help foster children at the same time.

Online technologies have revolutionized many areas of American society from online retailers to e-government platforms that enable you to file your taxes online. Since freedom of the Internet pervades our society, it’s surprising that the federal government has sought to prohibit online gambling. That approach has left American consumers completely unprotected in a thriving underground marketplace and allows billions of dollars in potential tax revenue to flow to offshore gambling operators.

This makes no sense. A more responsible approach, adopted by many other countries around the world, is to regulate this industry, taking appropriate steps to protect consumers and secure a significant, much-needed new source of revenue for federal and state governments. And in fact, Internet gambling outfits are eager to be regulated and taxed when operating in the United States. It’s one of the few groups that I have ever seen eager to have a tax levied on them.

Much like Prohibition in the 1920s, the current ban on online gambling has been a complete failure. Despite passage of the Unlawful Internet Gambling Enforcement Act of 2006, which forced the financial service sector to block “unlawful” gambling transactions — not an easy distinction to make when the federal government and many state governments have different viewpoints — Americans continue to wager more than $100 billion online every year. Some are playing online poker, placing a bet on the Super Bowl or wagering on the outcome of March Madness — all activities, which if done responsibly, should be allowed. Meanwhile, without a regulatory framework in place, we are unable to implement technologies that would protect against problem gambling, underage gambling, identity theft, money laundering and fraud.

Currently, there is momentum in Congress to replace this failed prohibition with a common-sense approach to protect consumers. Pending legislation introduced by Frank, the House Financial Services chairman, would regulate online gaming and require licensed U.S. operators of online gambling websites to use sophisticated identity and age verification technologies, among other safeguards, to combat problem gambling and prevent minors from participating. Additionally, I have introduced a companion bill that would ensure applicable license fees are applied and all applicable taxes are collected once online gambling is regulated.

According to an official score from the Joint Committee on Taxation, online gambling regulation would generate $42 billion in new revenue for the federal government. One-quarter of that money would be dedicated to foster children, and a small amount would go to the arts. My legislation is also crafted to allow state and tribal governments to benefit from the new activity. Based on a tax on deposits made to online gambling sites, it’s estimated that up to an additional $30 billion could be generated over 10 years to help struggling states balance their budgets.

Legalizing, regulating and taxing Internet gambling would help protect consumers and put an end to an outdated and unrealistic policy. In an economy that’s struggling to get back on its feet, this is one of the few pieces of legislation that will actually generate revenue and help business. At the same time, we have the rare opportunity to help some of the more than 500,000 children who live in foster care on any given day. I hope my colleagues will join me in changing a law that we know doesn’t work to help a group of children we know need more support.

Rep. Jim McDermott (D-Wash.) is the chairman of the Ways and Means Subcommittee on Income Security and Family Support.

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