CNN
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Professional poker players and sports bettors, and a handful of members of Congress, are demanding a change to the massive tax and spending bill President Donald Trump signed into law last week, arguing that a provision tucked into the measure late in the legislative process unfairly taxes gamblers on “phantom” winnings.
The new legislation changed the way gamblers deduct their losses on their taxes. Currently, gambling winnings can be offset by 100% of gambling losses, so gamblers who lose money in a year won’t face a tax burden. But the deduction will be lowered to 90% of losses in the new bill, which professional gamblers and tax professionals say could lead to taxes on income that gamblers did not earn.
“If they won $100,000 and lost $100,000, they still owe money on the $10,000” because only $90,000 can now be deducted, said Rep. Dina Titus, a Democrat representing Las Vegas who introduced a bill this week to reverse the tax change.
“It’s just really not good policy to have you paying taxes on phantom money that you didn’t earn,” Titus told CNN.
Most of the political focus of the Trump agenda bill has been on tax cuts, reductions to Medicaid and food stamps and boosted border funding. But the pushback over the gambling tax changes is one of numerous examples that demonstrate the far-reaching nature of the legislation that Republicans pushed through the House and Senate to deliver Trump his so-called “big, beautiful bill” last week.
The provision was included in the legislation through the Senate Finance Committee and was part of the Senate’s version of the Trump agenda bill. Congressional sources and industry officials say the change in the gambling tax law isn’t a reflection of a desire to target gamblers. Instead, it’s the product of the reconciliation process that was used to get the bill over the finish line in the Senate.
A 100% deduction of gambling losses up to the amount of gambling winnings has been tax policy in the US for more than five decades, according to the American Gaming Association, a gambling industry trade group. That policy was affirmed in the 2017 Trump tax cut bill, and the House’s version of the tax and spending legislation extended the deduction.
But a congressional source familiar with the process said the Senate had to change the tax provision in its version of the bill so that it would comply with the Senate’s reconciliation rules.
The provision was tweaked to 90% of deductions instead of 100% so that it would have a budgetary impact and so the Senate parliamentarian didn’t strike it from the bill – the Joint Committee on Taxation estimated the change would increase revenue by nearly $1.1 billion over the next decade.
A Democratic source said one potential reason that the gambling provision had to be changed to comply with the Senate’s reconciliation rules was that Republicans did not count the costs of extending the 2017 tax cuts against the deficit, a tactic that Democrats argued hid the legislation’s true cost.
“This wasn’t about any policy aims on gambling or a referendum on gambling. It was purely for procedural compliance,” a gambling industry official said.
A spokesperson for the Senate Finance Committee declined comment.
Republicans on the Senate Finance Committee Tuesday evening told the Huffington Post they didn’t know why the change was made – Sen. Thom Tillis said it was “bad policy.”
“I was so focused on Medicaid, I wasn’t looking for other reasons to be against the bill. But that would be another one,” said the North Carolina Republican, who opposed the legislation.
Sen. Catherine Cortez Masto, a Nevada Democrat, is also working on a fix in the Senate she intends to try to pass by unanimous consent later this week, according to a spokeswoman.
People inside the industry are debating what the impact on casinos, sportsbooks and gamblers will be if the provision takes effect next year as the law dictates.
One official with a sports betting operator told CNN the number of gamblers this provision will impact is ultimately very small, because most recreational gamblers are not itemizing gambling losses on their taxes in the first place, so they will not be affected.
But for gambling professionals like poker players and sports bettors who wager large amounts over the course of a year to eke out relatively small profits, the change could drive them out of the business.
“In poker, it means the players who are scraping by – earning their living on an especially high-volume, low-edge – are not going to be able to make it,” said Phil Galfond, a professional poker player and coach. “It just doesn’t feel right you can have a losing year and then pay tax on that losing year.”
Russell Fox, a tax professional who specializes in gambling taxes, said that the law risks both professional gamblers and casino high rollers getting taxed for non-existent winnings.
“Certain kinds of gambling are going to probably be untenable under this law because they’re high-volume, low margin,” Fox said. “Sports betting is going to be hit. The professionals making a living in that are going to have issues.”
The law could also affect recreational gamblers who win a slot machine or lottery jackpot, which are taxed, said Steve Ruddock, an industry consultant and editor of the Gaming Law Review. Those gamblers will be limited in how much they can deduct in gambling losses to offset the tax burden of their jackpot. (Non-professional gamblers who don’t itemize their deductions, however, already cannot take any deductions for gambling losses.)
The gaming industry is supporting legislation to reverse the tax change. A spokesperson for DraftKings, one of the biggest sports betting companies, said the company was “committed to working with federal lawmakers and the administration to restore equitable tax treatment for our customers.”
The American Gaming Association, which represents casino corporations, sports books and tribal casinos, sent a letter to the House Ways and Means and Senate Finance Committees in May that included the 100% gambling deduction as one of its priorities for the tax legislation. The group sent another letter last month urging the removal of a so-called revenge tax that had drawn opposition from Wall Street and global business leaders and was eventually trimmed from the measure.
After the bill passed last week, the gaming association praised the overall legislation – which will boost its corporate clients with lower taxes – while also pledging to fix the deduction issue. The AGA said in a statement it would work with Congress and the Trump administration to “restore the long-standing tax treatment of gaming losses.”
Titus argued that tax change risks pushing gamblers away from legal, regulated casinos and toward offshore gambling platforms where winnings are hidden.
“It hurts the industry because people will go elsewhere,” she said.
