Online Poker Could Become Legal in U.S. With Proposed Bill Reid-Kyle bill could bring in billions but sponsors pessimistic about passage.

Dec. 13, 2012 -- As the "fiscal cliff" looms, Congress is letting legislation languish that could bring in significant new revenue: a draft bill by Sens. Harry Reid, D-Nev., and Jon Kyle, R-Ariz., to regulate online poker.

The Department of Justice last year cracked down on Internet gaming by shutting down the three largest providers of online poker in the United States, says John Pappas, executive director of the Poker Players Alliance. The three catered to about two-thirds of all poker players in the United States who play online. Since then, the disenfranchised have moved their play to overseas providers.

Gaming industry experts estimate that 10 million to 15 million U.S. gamblers wager $4 billion to $6 billion online, through websites whose owners are based outside abroad. It's impossible to estimate, they say, how much of that total poker represents; but whatever the figure, participants playing through overseas providers pay no U.S. income tax on their winnings.

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Were online poker to be legalized in the United States, and were those winnings to be taxed, the added government revenue would be, Pappas said, "nothing to sneeze at."

If Reid's draft bill were to become law, Pappas said, the federal government would collect and pass on to states billions of dollars in new revenue over 20 years. "That would pay for a lot of programs that need funding," he says.

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The Poker Players Alliance says passage of Reid's draft bill, or something like it, would be a good thing. "We have always advocated licensed and regulated Internet poker," Pappas says.

"This would establish a U.S. system that would create strong regulations and keep bad actors out. It would allow the market to be run by regulated companies based here in the U.S. who would be accountable to U.S. players and U.S. regulators."

Not to mention that the potential revenue for government would be "extremely high," Pappas said.

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That's not to say the alliance likes everything about Reid's proposed legislation. The bill, as drafted, would not allow U.S. players to compete with poker players overseas. And it would exclude from the U.S. market for five years operators who previously offered online poker.

"We think that's unduly unfair and would eliminate some of the best operators globally," Pappas says. "It's part of the anticompetitive nature of this bill."

Not passing the bill, however, would be to invite chaos, its' advocates say.

Without such a bill, the 50 states would be free to promulgate 50 different sets of online-gaming rules.

Such a prospect worries a variety of groups, including Catholic Advocate and grassroots organization 60 Plus Association, that say the unbridled expansion of online gambling would harm underage gamblers, seniors, the poor and people with gambling addictions.

The American Gaming Association, which represents brick-and-mortar casinos, sounds a similar note: Without congressional action, they say, problem gamblers and minors will be put at unnecessary risk, and law enforcement will lack the tools necessary to prosecute illegal online gambling operators.

Further, advocates of federal regulation say, giving the states a free hand to set gambling standards would result in a regulatory "race to the bottom," where one state would have an economic incentive to make its regulations more lax than its neighbor's, to increase its gaming business and thus its tax revenues.

The prospects for passage of Reid's bill, which he has yet to introduce, are not great, the senator has said.

In comments reported this week by the Las Vegas Review-Journal, Reid noted that although his draft now had, for the first time, bipartisan support, there was no suitable bill to which his language could be attached as an amendment.

"Everyone, listen to this," the paper quoted him as saying. "We suddenly have Republican votes on Internet poker, two weeks before Christmas. Without being vulgar, what the hell would I put it on?"