A gambling tax provision in President Trump’s megabill that passed Congress earlier this month is ruffling feathers on both sides of the aisle.
Within the nearly 1,000-page proposal for tax and spending cuts lies a provision that experts believe will increase the cost of losses for gamblers. Some Republicans claim they were unaware of this until after it was passed.
Here are a few things to know about the change to the gambling tax.
What does the gambling tax provision do?
A major component of the plan passed by Republicans earlier this month was to extend expiring tax cuts enacted by Trump’s signature 2017 tax law.
Among the various new tax changes included in the proposal is a provision that reduces the tax deduction for gambling losses from 100% to 90%. This change is set to be implemented at the beginning of next year unless Congress intervenes.
When questioned about the legislation recently, certain GOP senators have minimized its effects on their constituents. However, lawmakers on both sides have highlighted the rapid pace with which Congress advanced Trump’s tax agenda.
“There was a reason I wanted a conference once we actually had text, and before we had a motion to proceed, I wasn’t granted that conference,” stated Sen. Ron Johnson (R-Wis.), a member of the Senate Finance Committee, on Tuesday.
“I knew we had all kinds of provisions that we had never discussed about in conference, and I wanted to discuss it,” he said. “I wanted to wait.”
Who is affected?
Experts say the measure could wind up meaning big trouble for professional gamblers.
“While it may not have a wide-ranging impact, this could significantly affect casino operators and the sizable group of professional gamblers,” Adam Hoffer, director of excise tax policy at the Tax Foundation, noted in an interview this week.
Hoffer explained that the provision would cause gamblers to incur more costs when they merely break even, illustrating a situation where a professional spends a million dollars annually on poker tournament entries.
“Over the course of that year, they also win, they cash out a total of a million dollars,” he explained. “Now that’s break even. They didn’t actually make any money there. And in previous years, before this tax provision change, they wouldn’t owe any net income.”
“However, with this change, instead of being able to deduct the million dollars that they spent on buying into poker tournaments, they’re only allowed to deduct $900,000,” he said.
He and others have also raised concerns that legislation puts at risk a growing sports betting industry and incentivizes offshore gambling.
How did it get in the bill?
The Senate’s chief tax writing committee said the provision made it into the plan due to the strict rules governing the complex process Republicans used to pass the package.
Under the wonky maneuver known as budget reconciliation, Republicans were able to greenlight the major tax bill through Congress without Democratic support in the Senate, bypassing the 60-vote threshold needed for most legislation to make it out of the upper chamber.
But the process comes with limitations.
A spokesperson for the committee said to comply with reconciliation rules, every provision from the president’s 2017 tax law “needed to be modified to create a budgetary effect.”
“In order to retain the gambling loss provision, it was changed to 90 percent,” the spokesperson said.
What will it save?
An estimate from the Joint Committee on Taxation that pegs the projected revenue generated from the provision at about $1.1 billion over roughly the next decade.
By contrast, experts have pointed to overall estimates of the package, which project the plan would add more than $3 trillion to the nation’s deficits over the same timeframe.
Much of the cost comes from the tax proposals in the plan. At the same time, the new law includes major changes that could lead to hundreds of billions dollars in reduced spending for Medicaid and the Supplemental Nutrition Assistance Program, new restrictions for student loan borrowers and the phaseout of multiple popular repayment plans, and changes targeting the Consumer Financial Protection Bureau’s funding.
“The tax burden doesn’t fall on the industry itself and has no tax implications for the gambling industry,” Lucy Dadayan, a principal research associate with the Urban-Brookings Tax Policy Center, said in an email.
“Still, the gambling industry is concerned the reduced profitability for players could dampen demand and push players into the unregulated gambling markets.”
Will Congress undo it?
Some Democrats have already been sounding alarm over the measure, which Sen. Catherine Cortez Masto (D-Nev.) unsuccessfully sought to undo earlier this month.
“It will do irreparable harm to our nation’s gaming industry if it takes effect — especially in Nevada,” the Nevada Democrat said at the time, warning it would “disincentivize” gamblers.
The Senate Finance Committee said Chairman Mike Crapo (R-Idaho) is “open to receiving feedback from affected stakeholders and learning more about industry reporting and compliance.”
“While the committee heard from gaming associations on other provisions after the Finance Committee’s text was released on June 16, there were no concerns raised with lowering the threshold,” they added.
Sen. Ron Wyden (Ore.), top Democrat on the Finance Committee, was pressed on Tuesday whether negotiations on the matter have reached leadership level as some Republicans have expressed interest in bipartisan tax action this year.
Wyden said Cortez Masto immediately talked to him about the matter and that he intends to “help in any way that I can,” calling it a “very important issue to her constituents.”
“The Republicans did, according to my colleague, great damage to the economy of her state simply because they didn’t consult with anybody,” he argued. “They rushed it through.”
