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Thoughts on PokerStars VIP Changes
2015-12-20

The Top 9 Myths About Online Poker
2015-05-17

The 4 Worst Tips Given To Beginner Poker Players (Don't Fall Into These Traps)
2015-05-03

Should You Play Poker Professionally?
2015-04-05

Poker Can Change Your Life: 4 Inspirational Rags to Riches Stories
2015-03-29

The Discomfort Zone: Manage it for Growth and Success
2015-03-15

An Intro to Daily Fantasy Soorts
2015-03-08

The 4 Main Psychological Principles That Shape Your Poker Play
2015-02-15

A Detailed Rake and Reward Comparison of Three of the Top Poker Sites
2015-02-08

Don't Jump The Gun: Get Full Value From Your Best Hands
2015-02-01

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Poker And The 2008 US Election

THE WEEKLY SHUFFLE, 2008-06-29, by TwoGun

We all know the political climate affects online poker. In the United States, a right-wing Senator managed to push through the UIGEA in the final minutes of a Congressional session. In Europe, there is a constant battle between state-controlled monopolies and the private online gambling operations.

In the United States, many are hopeful that a favorable election in November of this year will result in a future overturn of the UIGEA or some other sort of federal legalization of online poker. These people are either incredibly naïve or just downright delusional. Neither McCain nor Obama is directly good or bad for online poker. In other words, the online poker world has no dog in this fight. If you think there's the real prospect of an overturn of the UIGEA due to this election, please go to your nearest faucet, pour yourself a glass of water, splash it across your face, and see if you are now able to see straight.

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Some online poker players are hopeful that Obama will help the online poker world. Their reasoning is that since he is a Democrat and a self-described poker player, he may look out for his fellow poker players. Ozone and I met someone on the Party cruise who claimed to visit Washington DC every couple of months to lobby for poker, and he believed that we needed a democrat in the Oval Office to get anything done.

While these people's reasoning is cute, it is ridiculously optimistic and hollow. First, Obama has consistently opposed the expansion of legalized gambling in his home state of Illinois, so there's no reason to think he would push for a widespread increase in online gambling. More importantly, the way the UIGEA is written, it does not specifically outlaw online poker. Instead, it is merely enforcement legislation that instructs banks to blocks to block illegal online gambling transactions, which are defined as transactions that are illegal under current state or federal law.

Who is going to argue against blocking transactions that are already illegal? The bill has proven to be very difficult to enforce, since currently, it is very vague what is or is not legal under US law. The DOJ believes all online gambling is illegal (even horse racing), the horse racing industry believes their gambling is legal due to carve outs, the US-facing online poker industry believes the Wire Act and other state laws do not pertain to them. In short, the UIGEA did not settle this debate as much as raise the stakes.

Let us also remember that the bill the UIGEA was tagged onto unanimously passed in the Senate (meaning it got both Obama's and McCain's vote), and only two people voted against it in the House (with over 300 voting for it).

The one group that has political clout, the banks, expressed reservations to the UIGEA due to its vagueness, as well as the difficulty in blocking check and ACH transactions. In general, if there is a political party that is responsive to the banks, it is the Republicans, not the Democrats.

Not only is it pitifully hopeless to hope for an overturn of the UIGEA, the Obama backers may realize a painful tax bite if he is indeed the President. Obama has made it very clear he intends to raise taxes. This can bite gamblers in two areas.

First, I would not be surprised if under an Obama presidency, legislation was introduced to tax gambling winnings at the gross level, instead of the net level. To be clear, I still view the chances of a bill like this passing to be very slim, certainly less than 10%. My point though is that I think there's an increase chance that it might happen under an Obama presidency rather than a McCain presidency.

Right now, on a US tax form, you declare your gross winnings as income, and are allowed to deduct from your income your gross losses (up to your winnings). All Obama and the Democrats have to do is introduce legislation that disallows the gambling loss deduction, as was done before in 1997.

For example, let's say you have 200 gambling sessions, with $250,000 gross wins and $200,000 gross losses (so you won $50,000 for the year.) Currently, you claim the $250k, then deduct $200k, so you essentially pay taxes on $50k. However, if you aren't allowed to deduct your gambling losses anymore, you would pay taxes on the $250k instead of the $50k. Taxes on $250k would amount to about $90k, so you end up $40k in the hole for the year. This is how gambling winnings are currently taxed in Obama's home state of Illinois, so don't think for a second that this sort of insane tax policy has no precedence.

Who would fight this absurd increase? Remember, taxing gamblers sounds a lot easier than raising taxes on hard-working, middle-class families. Obama has made it very clear he intends to push the tax burden even more onto higher income people (and other people that "can afford it.") Who better can afford it than someone with a gambling windfall?

If you think the PPA will somehow stop this, then perhaps you really need to wake up and smell reality. The only groups that could stop this are the land-based casinos and the horse racing companies since this would cripple their businesses (high rollers sure wouldn't be coming anymore if they can never win after taxes). Last time I checked, the Republican Party was much more responsive to business interests than the Democrats.

Think you can somehow get around this by declaring yourself as a poker professional? First, remember the IRS may disagree with you (especially if it means you end up paying a lot less in taxes), and they can easily win if you do in fact have another job. Therefore, at the very least, you are facing a choice of gambling all the time or not gambling at all. In general, most winning poker players find that the 'semi-professional' route is the most optional. In other words, having a main job and just playing poker as a profitable, side hobby. This pretty much becomes impossible if you cannot deduct your gambling losses.

Let us also remember that Obama intends to increase the Social Security tax on people with $250k incomes and higher. Let's say you win a big tournament and go pro. You make $300k for that year. Guess what? You get to pay over 50% of your income into taxes now. First, your marginal tax rate is now 39.6% since the Bush tax cuts expired. Also, since there is no cap on Social Security taxes, you get to pay an additional 12.4% there, plus 2.9% for Medicare since that is not capped even under current tax law. You also better hope you don't live in California, New York, or any other state with a significant state income tax. Have fun paying 60% vigorish on your life if you do.

The upcoming US election will certainly be interesting. For the poker world though, the election is a non-event. In my opinion, there is absolutely nothing good that can come about it. However, there is a small chance that poker may be legislated to death in the United States via taxes.

The Weekly Shuffle is our Sunday column with our observations and commentary on the poker world. Have an idea for an article? Leave a suggestion on the feedback page.

 


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