The National Council on Problem Gambling recently stated that the legalization of sports gambling in the US will increase gambling participation and problems associated with gambling. They propose to pay for treatment of gambling problems with a “problem gambling tax.”

Problem gambling slot machine
As more and more legal gambling spreads, so do the calls for funds to treat problem gamblers. (Image: Maxx Studio/Shutterstock)

But who exactly should be paying that?

A surcharge on all gambling winnings has been proposed by several American states and foreign countries. 1% is the number most often pushed for a reasonable problem gambling tax rate. The concept is to take a small cut of each winning wager and use that to fund programs to address problem gambling. However, this concept of a ‘winner tax’ is something that develops in the midst of much shifting of blame and cost.

Good Policy or Nanny State Socialism?

The debate over who should pay for a gambling problem involves a number of vested interests. Follow the bouncing betting slip to the lawmakers to locate the root of any problem gambling tax.

The problems gamblers themselves, their families, and employers are primary voices in this concern. Family and employers want treatment that brings in the health insurance companies. Those mega-industries don’t want to pay for all the expensive treatment possibilities. They lobby the issue with governmental agencies who settle on legislative action. They want a law. Bills are proposed, commissions are created, regulations are adopted.

As long as institutional governmental agencies take on social issues, the argument rages about spending tax dollars on such problems. But should actions or activities that are a matter of personal choice, be regulated? Libertarians shout No! Conservatives say maybe. Liberals want to help … but do they?

Such an intervention into private activities raises the cry of “socialism” or “nanny state.”  But arguments quiet when the tax is on the behavior itself. Avoid using other tax revenues collected from everyone to deal with the problem, tax the gamblers instead. Already there are taxes on liquor and cigarettes, why not gambling? You don’t pay a liquor tax if you don’t drink. The same reasoning follows with a problem gaming tax.

The Reality of Sin Tax Revenues

You hear the term ‘sin tax’ when government agencies describe taxes on gambling.  There are two types of taxes levied on gambling winnings, each with a separate purpose. A sin tax is imposed with the expressed purpose of lowering the taxable behavior.

Sin taxes can apply to a wide range of products and behaviors. For instance, alcohol, tobacco, drugs, fast foods, candy, coffee, sugar, pornography and gambling are taxed in some jurisdictions. Sin taxes aim to lower demand and/or decrease use. Pigovian taxes apply to the same products and behaviors but are designated to restore or mitigate the damage done to society by such behaviors.

In theory, Pigovian revenues are directed to treatment programs, help hotlines and other interventions. While the intent and use of such taxes are different, the end result for the wagering public is the same. A gambling tax takes a bite out of winnings, no matter what label is placed on it.

State-by-State Issue

In the US, the current status of taxes is complicated as states individually roll out their online gaming and sports betting regulations. While gambling winnings are subject to Federal Income Tax, there are a range of state bills pending that will spell out the amounts different states will withhold from gaming winnings. Maine recently passed a new gambling bill, as have New Hampshire, New York, and Montana. These States join others all ready riding the wagering wave sweeping the country since Federal regulations eased.

Of course, not all states in the US are going to allow online gaming and sports betting. But those that do are making individual decisions on imposing a “Problem Gambling Tax.” This is a levy on top of any federal or state income tax on winnings. A gaming tax can be on individual bets or on gaming operator revenue or both.

Countries With No Gambling Tax

There are places in the world that do not tax gambling winnings. Countries with no such tax are:

  • Austria
  • Australia
  • Belgium
  • Bulgaria
  • Canada
  • Czech Republic
  • Denmark
  • Finland
  • Germany
  • Hungary
  • Italy
  • Luxembourg
  • Malta
  • Romania
  • Sweden
  • United Kingdom

On the other hand, many of these countries do impose licensing fees or direct taxes on the betting operator, which in most cases pass through to the wagering public in the rake or hold. Ireland, for example, has a 1% tax on each bet a bookie takes. How that is factored into the payouts is determined by each wagering company.

Who do you think really pays that fee? Who really will pay any problem gambling tax? Yep, if you place that bet ,you pay that tax.

Tim Lavalli holds a Ph.D. in psychology and has focused his work on the mental aspects of competitive games. He co-authored Check-Raising the Devil, the autobiography of poker pro Mike Matusow. You can follow him on Twitter @timlavalli.

Similar Guides On This Topic