Buried in the nearly 1,000 pages of President Donald Trump’s tax-cuts-and-spending bill was a little-noticed tax write-off change that has since drawn criticism from gambling industry interests and a bipartisan group of senators.
That this change came to be included in the package of measures extending tax cuts in the 2017 Tax Cuts and Jobs Act exemplifies the issues that can arise from Congress using the reconciliation process to pass legislation, especially when that legislation is packed full of so many provisions that legislators and their staffs often can’t digest everything before having to cast a vote. But it also is part of a larger conversation about the broader effects of gambling in America and whether the government should disincentivize it.
Accordingly, this could be the first part of the massive legislation, which when taken as a whole has shown to be unpopular with voters thus far, to be repealed.
Historically, gamblers could deduct 100 percent of their losses from their winnings, so that they pay taxes only on their net income. Here’s what that had looked like in practice:
- A gambler wins $100,000 in a year
- He or she loses $100,000 that year
- Any losses are fully deductible, so the bettor owes zero dollars in taxes
But the One Big Beautiful Bill Act caps the deduction at 90 percent, so:
- A gambler wins $100,000 in a year
- He or she loses $100,000 that year
- Although the bettor theoretically breaks even, only 90 percent of the losses are deductible, so taxes are due on $10,000
The Senate Finance Committee, whose piece of the bill contained the change, insists that the provision was not intended as an effort to deter gambling. A Finance Committee spokesperson told The Dispatch the panel made the change in order to comply with rules governing the budget reconciliation process. Committee Chairman Sen. Mike Crapo of Idaho has said he is open to restoring the full deduction.
Although most of the backlash to the provision came after the bill was signed into law, the measure was included in the original draft of the Finance Committee’s portion of the bill, released weeks before it passed through the full Senate. Still, several Republican senators who sit on the Finance Committee were unaware of that change to the tax code, even days after Trump signed the whole bill on July 4. Lawmakers from both sides responded quickly with efforts to restore that section of the tax code to its previous form, though there’s been little progress.
Sources in the industry and policy spaces agreed with the Finance Committee that the OBBBA measure was not intended to discourage gambling, describing it instead as a means to raise revenue, as well as a way to comply with budget reconciliation rules, which say that legislation passed through the process must have a budgetary impact. But some policy advocates and members of Congress are using the controversy over the tax write-off as a moment to reflect on the pervasiveness of gambling, especially on sports, in the wake of the Supreme Court’s 2018 ruling that the federal ban on sports betting was illegal.
Republican Rep. Blake Moore of Utah—who sits on the House Ways and Means Committee, which handles tax policy—said the 90 percent cap is “good as is.”
“I am aligned with Utah‘s restrictions on gambling and consider gambling to be an addictive activity that could potentially undermine the pursuit of a good life and public health,” he said in a statement to The Dispatch. “If efforts to address the 90 percent gambling loss deduction cap come in front of the Ways and Means Committee, I believe the committee should consider whether or not online sports gambling is serving the best interests of American families.”
While the negative reaction to the provision in the OBBBA has been bipartisan, so has the backlash against the effects of legalized sports gambling. Following the Supreme Court decision, 39 states plus Washington, D.C., legalized sports betting, with 33 states and D.C. allowing players to place bets online. Studies have shown increases in irresponsible gambling, calls to centers offering help to problem gamblers, credit card debt, and risk of bankruptcy following legalization.
As ads for online betting apps proliferate on sports broadcasts, several events over the summer involving sports betting have sparked outrage, as well as calls to rein in the industry. In July, two players on the Cleveland Guardians were suspended during a gambling probe, with at least one of them being investigated in connection with so-called “prop bets” placed on his pitching performance. During the annual Little League Baseball World Series, Little League International took the step of releasing a statement condemning betting on the outcomes of its games, which involve preteen boys competing for the title.
For groups opposed to the easy availability of online gambling, the tax provision serves as a welcome disincentive to bettors. “The government really has a role in saying what is and isn’t good for society,” Maggie McKneely, a legislative strategist at Concerned Women for America (CWA), told The Dispatch. “We regulate alcohol, we regulate cigarettes, and we know that there is just really no benefit that gambling has on society.” Earlier this month, McKneely published an op-ed in the Washington Examiner listing the excesses of sport gambling and saying that her organization favored Congress’ move to lower the deduction.
Former Vice President Mike Pence’s Advancing American Freedom (AAF) is also asking lawmakers to leave the provision in place. AAF policy director John Shelton argued that allowing gamblers to deduct losses unnecessarily complicates the tax code.
“When you have all these bespoke deductions for different industries, then you are making the tax code much more complicated,” he said. “And this isn’t a complication that helps grow the economy. It’s not a deduction that helps families—if anything, the opposite. And so, without getting paternalistic, we think it’s just a dead end, a useless exercise, to go back and fix this.”
Shelton’s argument was centered more on economic grounds than moral ones, but the policy memo that AAF has been sending to congressional offices points to the ravages of betting. “Sports gambling funds the growth of government while harming American families,” the document reads, noting taxes and fees that blue states have levied on sports betting, as well as the increased bankruptcy rates that have followed betting’s broader legalization.
Those who favor restoring the full tax deduction argue that, without it, gamblers are paying taxes on income they do not actually have. “There’s no reason to penalize gamblers engaging in lawful economic activity,” Michelle Minton, managing director of drug policy for the libertarian Reason Foundation, told The Dispatch. “Moreover, it hurts individuals significantly who make some amount of living from gambling, and it definitely will hurt the casino industries and the gambling industries as people adjust their behavior.”
As for the negative consequences of legalized gambling, Minton said that the tax revenue gambling produces funds programs that help people struggling with problem gambling. She also pointed to research that indicates rates of gambling spike in the first few years after legalization but later decrease as the novelty wears off.
“From what we’ve seen, the results of legalized gambling in the United States are very typical of when gambling is legalized anywhere else,” Minton said.
Most members of Congress appear to align more with Minton, and the concerns of Moore and others about gambling do not appear widespread on Capitol Hill. Nevada’s two Democratic senators—whose constituents perhaps stand to lose the most should bettors stop gambling due to the change—argued that how much of their losses gamblers should be able to deduct is a separate conversation from how to stop problem gambling.
“I think they’re two different issues, right?” Sen. Jacky Rosen told The Dispatch. “One issue is the taxes. That’s what we’re talking about here. Before, you could deduct your losses against your winnings. That’s a tax issue. The other issue of addiction or gambling or abuse, other different things—those are different issues.”
Sen. Catherine Cortez Masto, who is leading the Senate effort to restore the full deduction, has a similar view. “I think you’re talking about two different things,” she said. “And one was already in the law. It allowed 100 percent deduction. … Let’s just fix that. And that’s my focus.”
But Democratic Sen. Richard Blumenthal of Connecticut argues that the country can do better than the previous status quo, calling for more support for gambling addiction services. He has introduced the SAFE Bet Act, which would restrict sportsbooks’ advertising, limit the number of deposits that can be taken from a customer per day, and prohibit the use of artificial intelligence to tailor promotions to individual gamblers.
“We should be reflecting on widespread gambling and its economic impact, but also on the addiction that it may enable and promote,” he told The Dispatch. “We should be providing more help for people who may be vulnerable to gambling addiction and more safeguards to the kind of pitches and promotions made by the gambling industry, rather than essentially providing a financial incentive.”
Rep. Paul Tonko of New York, a Democrat and the House lead on the SAFE Bet Act, also said the country should reconsider the prevalence of sports gambling but added that the OBBBA’s provision “is not the appropriate vehicle for that conversation.”
“If anything, big sports gambling corporations are celebrating the changes to this provision as it makes sports gambling largely unprofitable for professional bettors—further boosting profits for the industry at the expense of the rest of us,” he told The Dispatch in a statement.
