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How Congress is quietly legalizing online gambling

Democrats and Republicans want to help casinos extend gambling, cut costs, and pump up to $7 billion a year in new gambling taxes to the government

Internet gambling could go from being mostly banned in the United States to being legal, licensed, casino-controlled, and taxed, soon, thanks to US Rep. Barney Frank, D-Mass., who pushed HR-2267 through in a bipartisan 41-22 vote in his House banking committee last night. Rep. Jim Gerlach, R-Pa., is among the local lawmakers on the committee who voted Yes.

Looks like the bill well get added as an amendment on a larger "must-pass" law, sparing House and Senate members a public debate and vote on gambling that could otherwise make them unpopular, according to FBR Capital Markets casino-stock analyst Edward Mills, who was there watching. "Frank cares a lot about this bill," he told me. Credit card bets are prohibited, but debit card debts that drain the family savings account are allowed.

How'd this happen? The casinos got to help write the bill - and the government gets a big cut: 2% of your bet deposit goes to the US Treasury, and up to 6% to state or Indian-tribal treasuries (though states can opt out if they really want to), Mills says. The feds will also collect a separate wager tax, and will try to collect income taxes on your gambling profits. In all, supporters claim oline gambling will add $42 billion over 10 years to the U.S. Treasury, and $30 billion for the states and participating tribes.

Isn't online gambling competition for casinos? This bill is written to make it relatively "easy to comply" for existing gambling operators and casino owners, says Mills. By contrast, it bans online-betting entrepreneurs who've already been convicted of breaking U.S. betting laws from getting the new licenses.

"A lot of these land-based casinos have been shut down to online gambling have lobbied for this regulatory regime," he told me after the vote. Mills expects casino operators will offer online gambling inside the casinos. That likely means less need for human labor, a frequent justification for casinos in job-scarce areas like Atlantic City and Philadelphia.

And why stop there? Won't casinos eventually want to outsource gambling to your home computer and smart phone, so they don't need to manage costly casino barns staffed by surveillance teams, dealers who need constant watching, and underdressed waitresses? Mills says onilne gambling lets casinos "diversify," but shouldn't be seen as an immediate threat to slots parlors and other gambling halls: "There's still something to be said for having that physical gaming experience."