Recently, during a poker match, an intriguing situation arose. A young individual who professionally gambles online was part of the game. Exiting early after facing a loss, he vented his frustration at a recent tax increase implemented by the US Congress. His exasperation stemmed from the fact that he could now only account for 90% of his losses. When I agreed with the tax adjustment, he was taken aback and began arguing that the amendment was unjust.
The young gambler argued in terms of equating his losses to that of a business or stock market. He felt that just as people have the ability to account for a complete loss in business or stocks, he was should be entitled to the same with his poker losses. Previously, until the US introduced the One Big Beautiful Bill, he could’ve done so. However, there are distinctive differences between stock market investments and online gambling that he was overlooking.
Investing in stocks, even with its speculative aspects, is fundamentally investing, whereas online poker fits into the category of recreation, or expenditure, to put it in economic terms. Just as people cannot claim a refund for a movie ticket they didn’t enjoy, it is not rational for gamblers to be able to report their losses either. In reality, they should consider themselves fortunate to be able to account for even 90% of those losses.
This, of course, does not imply that gambling is inherently evil, but the question is whether or not it should receive the same tax advantages as investing. The promotion of investment activity by the tax code is primarily because it triggers job creation, wealth generation, and economic growth. Comparatively, does gambling provide alike influential benefits?
Taxes are a bitter reality we all have to accept. The government necessitates revenue collection and thus taxes an array of prolific and beneficial activities such as work and saving. It is good practice to tax more heavily on activities that contribute less to the economic well-being. Consequently, the US charges taxes on investment earnings (although lesser than income) while also allowing individuals to consider their losses.
The allowance to report losses fosters healthy risk-taking by facilitating both business startups and investments made in them. The clear implication is that if people invest and incur losses, they don’t face any tax liabilities. However, it is uncertain why a sports bet should be treated in the same way. Given that it does not contribute broadly to societal prosperity, and may even impose costs, particularly with the upswing in gambling issues, its tax treatment is questionable.
Nonetheless, before this new cabin bill came into effect, gamblers could completely write off their losses. If a bet of $5,000 was won, then lost again in another bet, there would be no tax obligation. However, under the new terms, only $4,500 could be written off, leaving an income tax due on $500 despite the net gain being zero. This change reflects a dual appreciation of reality: the growth of gambling within the economy and the government’s increased need for revenue.
With the overturning of a federal law by the US Supreme Court in 2018, the prohibition on sports gambling was lifted. In the wake of this, several financially tight states have opened their arms to the market. Alongside this, technological advancements have facilitated betting on practically anything, and at any time, thus further supporting market expansion. Even in these extravagant times, politicians, regardless of party affiliations, concur that the US needs to tax something, and gambling, being less productive, is a fitting candidate.
However, there’s a caveat. As gambling evolves into a more significant part of the economy, the line which differentiates it from investing is becoming blurred. There are professionals who earn their livelihood from this field. These professional gamblers, like our young poker player, fear the law will tighten their already slim profits. Some might even abandon the field, leading to reduced tax collection.
The consequential rebuttal is that if professional gamblers are indeed skilled and savvy, their economic contribution might be more valuable elsewhere rather than gambling. Of course, numerous professions offer questionable economic value and still qualify for tax write-offs. Yet, setting a tax exception for professional gamblers might encourage casual gamblers to exploit this provision and claim professional status, which could potentially exacerbate problem gambling.
On the opposite side of this argument are the investors who are progressively behaving like gamblers, especially given the surge in popularity of trading applications that have democratised day trading. More and more individuals are gambling on stocks or cryptocurrencies, similar to placing bets on sports events. But it’s important to bear in mind that the boundary between investment and gambling is not merely intention-based.
Even day trading, which is often deemed self-defeating, adds economic value by fostering market liquidity and providing price information. As this vice economy thrives, facilitated by the legalisation of gambling and accelerated by technological advancements, we cannot ignore the potential problems it brings along.
There is little doubt that the US government needs more revenue. And gambling, seen as a relatively unproductive activity, presents a good opportunity for taxation. Raising taxes on activities that provide minimal benefit to the overall economy, rather than penalising productive actions, is generally a better approach. If I was one to place bets – which I’m not, though I do enjoy a good game of cards – I’d wager on more taxation on a variety of other economic activities.
The post Is it Fair? Tax Changes Impact Online Gamblers appeared first on Real News Now.
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