Managing Editor
The tax changes on gambling income included in the recently-passed “Big Beautiful Bill” may be repealed, but it won’t happen immediately. Republican Senator Todd Young blocked an attempt to fast-track a fix through the Senate on Thursday because Democrats wouldn’t also support a change he wanted.
Despite several prominent members objecting to it, Republicans passed the omnibus budget bill last week. Among its 900-plus pages is a provision capping deductions for gambling losses at 90% of their gross value, rather than directly offsetting winnings and losses.
According to the Associated Press, many lawmakers admit they passed the bill without being fully aware of what was in it. Poker players like Phil Galfond were quick to pick up on the change to gambling taxes, due to their likely impact on professional gamblers’ careers. The gambling media was quick to echo their concerns. By yesterday, even the New York Times, Wall Street Journal, and CNN had taken note and published articles on the subject.
Separate efforts to repeal that provision are underway in the House and Senate. On the Senate side, it’s Democrat Catherine Cortez Masto leading the way.
Fellow Democrat Ron Wyden told AP that Senate Republicans are “walking all over the Capitol saying they didn’t know anything about this policy.”
Nonetheless, when Sen. Masto moved for unanimous passage of her proposal to strike the provision, Sen. Young objected. Because of that, it will need to go through a longer, slower legislative process.
Fortunately, the new law won’t come into effect until 2026, so there is still ample time to change it.
Roll Call, covering Capitol Hill news, reports that Young’s motivation is to try to force Democrats to endorse a separate change to the law he voted for and vocally supported.
House and Senate Both Move to Repeal Gambling Tax Change
Reverting the change to the gambling tax code is a Democrat-led effort, but it seems to have enough Republican support that it could succeed, even if it takes a while.
House Rep. Dina Titus, a Nevada Democrat, was the first to take action, declaring her intent even before the bill passed. Sen. Masto introduced her effort in parallel in the other chamber.
Catchy acronyms for bills are all the rage in the federal legislature at the moment. Titus and Masto haven’t disappointed.
Titus has titled her bill the FAIR BET Act, short for Fair Accounting for Income Realized from Betting Earnings Taxation.
Not to be outdone, Masto went with the FULL HOUSE Act. That stands for Facilitating Unbiased Loss Limitations to Help Our Unique Service Economy.
The American Gaming Association has thrown its weight behind the cause as well. Although professional gamblers have the most to lose, the change would lead to a hefty tax bill for a recreational high-roller having a break-even year. Keeping those players coming back is critical for casinos’ success, so anything that would diminish their experience is bound to receive industry pushback.
What Does Sen. Young Want?
Per Roll Call’s reporting, Young’s motivation relates to another change he wants to see rolled back.
Under current tax law, US educational institutions with 500 or more tuition-paying students pay a 1.4% tax on investment income from their endowments. The Big Beautiful Bill changes that to a sliding scale from 1.4% to 8%, but raises the floor to 3000 students.
What Young reportedly objects to, however, is the removal of an exemption for religious colleges.
As the Senator for Indiana, Young’s constituency includes the University of Notre Dame in South Bend. It has over 13,000 enrolled students and would need the religious exemption if it is to avoid the tax.
He told Roll Call, “As long as my Democratic colleagues are keen on fixing provisions, I think it’s only fair that we fix this one as well.”
What’s at Stake?
At present, US gamblers owe federal income tax on net winnings. That means that a player who wins, say, $10,000 will not owe taxes if they also lose $10,000 in the same tax year. The same is true for state taxes in most states, though a few don’t allow losses to be deducted at all.
With the change in the Big Beautiful Bill, the player who wins and then loses $10,000 would owe tax on $1,000 in “income,” despite not having made any money. That’s because only 90% of the $10,000 in gross losses would be deductible.
The impact could be greatest on players who come close to breaking even, which includes many professionals. Exactly how bad it would be would depend on the IRS’s approach to accounting. Losing and winning the same $10,000 repeatedly would accumulate $1,000 in taxable “income” each time, which could lead to wildly different outcomes for high-volume players depending on the frequency with which the losses and winnings are counted.
Image Credit: Brookings Institution via Flickr (license)
