Online Professional Gambler Speaks Out Against Tax Changes

I found myself in a recent poker game, seated face-to-face with a youthful professional poker player who made his living on the internet. The session ended prematurely for him, with an unfortunate loss, but before departing, he expressed his frustration over a tax hike approved by the US Congress the previous season. This new law meant he could only deduct up to 90% of his suffered losses, a change to which he bitterly objected. This was the catalyst for his outrage, feeling slighted by what he perceived as an injust adjustment.

His fury took a further turn when I revealed that I happen to be one of the rare few in support of this controversial tax. He felt it reflected a glaring inconsistency in the taxation system, given that individuals have the right to deduct their full business or equity market losses. He questioned why he couldn’t have similar perks pertained to his poker losses, especially considering the fact that he could, before the introduction of the US One Big Beautiful Bill.

I pointed out to him that the nature of online poker sets it apart from the stock market activities. While stock speculation is still considered an investment, betting, particularly on online poker, leans more towards amusement—a form of consumption in economic terms. Much like individuals cannot demand a refund for a disappointing movie experience, poker players should equally not expect full compensation for their losses.

The truth is, they are fortunate to be permitted to write off something as high as 90% of their losses. This is not to vilify the act of gambling; it’s just pointing out that the tax system doesn’t necessarily need to encourage it in the same manner it promotes investment activities.

There’s a reason behind the tax system’s encouragement of investment activity—it results in wealth and job creation and plays a pivotal role in economic growth. Taxes, despite being unpopular, are unavoidable for the generation of government revenue from productive pursuits like work or savings. Naturally, a justifiable policy entails levying a higher tax on pursuits that offer lesser benefits to the economy.

Consequently, the US government levies taxes on investment earnings, albeit at a lower rate compared to income tax, and provides the provision to fully write off losses. The underlying idea is that the lack of a tax liability in cases of financial loss stimulates some degree of healthy risk-taking in starting and investing in businesses.

However, a question mark looms over the necessity for betting, say on a basketball game, to be given the same tax treatment. Apart from not producing the same societal advantages, betting might incur societal costs, especially given the increasing issue of problem gambling. Yet prior to this reform, gambling losses could be fully written off.

In the instance you won $5,000 in one bet and lost an equal value on another gamble, there would be zero tax liability. The current law permits only a $4,500 write-off, leaving you liable to pay income tax on the remaining $500 regardless of making no net profit. This change reflects acknowledgement of two realities: the growing prevalence of gambling in the economy and the increased demand for government income.

Following the US Supreme Court’s removal of a federal law against sports gambling in 2018, several states struggling with a cash crunch opened their markets. Technology enhancements further facilitated this expansion, enabling instantaneous gambling on nearly everything. Amid these spendthrift conditions, even politicians from opposing sides faintly acknowledge the necessity for taxation, with preference given to less productive activities.

Therefore, it is more prudent to limit the allowable deductions on gambling losses rather than to hike the capital gains tax. However, a dilemma arises as gambling grows into a more significant component of the economy, blurring the lines between investment and gambling. Certain individuals are generating income through these activities, rendering the argument from professional gamblers that this law could narrow their slim profits.

Several argue that the law might lead them to abandon their profession, resulting in a decline in tax revenue for the government. Yet, if professional gamblers indeed prove more intelligent, potentially their talents could find better economic applications elsewhere.

While it’s a fact that a number of people earning a living from occupations of debatable economic value get to completely write off their losses, an exception for pro gamblers might create incentives for amateur gamblers to deceitfully claim a professional status. With the rise in problem gambling, this could instigate unwelcome ramifications.

Then, there’s the counterview: an increasing number of investors are displaying gambling-like traits and still have the privilege of writing off their total losses. The increasing accessibility of trading apps has led to the mass popularization of day trading, and people are betting on entities like stocks or cryptocurrencies much like they would on a sports match.

However, the distinction between investing and gambling not only lies in the intent but also the impact. Despite day trading not always being in the traders’ interest, it contributes to the economy by providing market liquidity and pricing information.

While the ‘vice economy’ backed by the increased acceptance of gambling and advancement of technology has its negatives, the US government’s need for increased revenue is undeniable. Tax on pure gambling seems an effective revenue source. Although I’m not much of a gambler, given my love for card games, I’d wager that a wide array of other economic actions would also welcome higher taxes in the near future.