A wide-ranging tax and spending bill passed by the U.S. Senate on Monday contains language that would limit the tax offset for gambling losses to 90 percent of total winnings, a change to long-standing policy that could have significant impacts on horseracing and other forms of gambling.
The Senate bill, which is forecast to result in a $3.3 trillion increase in the deficit over the next 10 years but slashes taxes by $4.5 trillion over that same timespan, was being debated in the House of Representatives on Wednesday under pressure from President Donald Trump, who has been pressing his conservative allies to pass the bill by July 4.
The limitation on offsetting losses would upend decades of tax policy that allowed gamblers to claim losses up to the amount of their winnings, just as any other business can use expenses to offset revenue. Under the new language, which was inserted into the Senate bill after the passage of a similar bill in the House that did not include the policy change, a gambler with $100,000 in winnings but losses equal to or in excess of that amount could only offset $90,000 in losses and would pay taxes on $10,000 in winnings, even if the gambler had a net loss for the year.
A number of professional gamblers in horse racing, including the operators of computerized robotic wagering systems, rely on high-volume, low-margin models that would be severely impacted by the new policy if it is enacted (and if the operators are subject to U.S. tax law – many CAWs are incorporated offshore). CAWs are estimated to provide up to 30 percent in handle on U.S. Thoroughbred races.
Under the new policy, a CAW operator or professional horseplayer subject to U.S. tax law who churns $500,000 through the pools to net a $10,000 profit – a 2 percent margin – would only be able to offset a maximum of $451,000. The gambler would then pay taxes on $59,000 of income, rather than $10,000, which would likely wipe out the original profit.
Though language can technically be removed from the bill, the legislation is likely to face an up-or-down vote without any changes, according to Tom Rooney, the chief executive officer of the National Thoroughbred Racing Association and a former four-term Republican U.S. Representative. As of Wednesday afternoon, Republican House leaders were attempting to marshal support for the bill in the form sent over from the Senate, but it was unclear if Republicans had enough support to call for a vote.
Rooney said in an interview on Wednesday afternoon that the NTRA had put substantial work into the bill to protect tax and depreciation language in the House bill that was also included in the Senate bill. He called the Senate addition of the language changing the gambling-loss offset a “curveball at the 11th, actually the 12th hour.”
“This is a big deal,” Rooney said. “It’s a big hit to people who support our sport, because without horseplayers we don’t have a sport.”
On social media, professional poker players have been especially vocal about how the change in policy would impact their professions, with some saying that it would force them to quit.
Senate Republicans have introduced dozens of changes to tax policies and slashed benefit programs in order to mitigate the impact of the tax cuts on the national deficit, but the current version of the bill comes nowhere close to wiping out the gap, according to multiple independent, non-partisan analyses of the bill. Democrats have united around opposition to the bill.
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“[Republicans] are looking anywhere and everywhere they can to find money,” Rooney said. “Going after gamblers may look good, and it’s true there’s money there. But make no mistake. This is going to hurt us and any other” gambling enterprise.
Given the circumstances, in which President Trump is pressing the House to pass the bill without any changes to the Senate bill, gambling industries may have to “look down the line to see how we can make this right” after the bill passes, Rooney said.
“If the bill passes [the offset limit] is not going to go into effect right away,” Rooney said. “The only thing we may be able to do is work with our colleagues on the Hill on a way to move forward that doesn’t hurt us.”
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