Washington has a bad habit of creating new taxes that sound harmless until ordinary Americans get the bill.
Buried deep within the Senate’s version of the One Big Beautiful Bill Act, which is now law, is a provision that few people have heard about, but millions could feel its effects.
That’s exactly what happened when the Republican-led Senate inserted a provision into Section 70114 of the OBBBA, which taxes gambling losses at a rate of 10%. Comparatively, the original House-passed version of the OBBBA did not reduce the deduction limit for gambling losses against winnings.
Under current federal law, not only are gamblers’ winnings taxed, but also gambling losses are now treated as taxable income. Now, when a gambler loses, the federal government claims its share of their losses through the newly created tax code. Regardless of whether you win or lose, Uncle Sam takes a cut.
For decades, the tax code previously recognized a simple principle of fairness: gamblers should be allowed to deduct their losses against their winnings, up to the amount won. After all, a gambler who wins $10,000 over the course of a year but loses $10,000 has not actually earned a profit. Taxing someone on money they have never truly kept is fundamentally unfair.
This approach resembles what is often commonly referred to as a “sin tax,” an excise tax levied specifically on goods and services that are deemed harmful to society and individuals.
Gambling isn’t the only thing in U.S. society that is subject to a so-called sin tax, which is a targeted tax that government officials have imposed to discourage certain behaviors. Large targets of this type of excise tax include alcohol, tobacco, and in some jurisdictions, fast food. These goods and services require the consumer to take a risk on their own fruition, like investing in the stock market.
However, gambling is fundamentally different from purchasing a pack of cigarettes or a bottle of liquor. Gambling involves risk-taking, much like investing in the stock market, starting a small business, or making other speculative financial decisions. No investor would be expected to pay taxes on gross stock sales without accounting for the losses incurred along the way. Gamblers should be afforded the same basic principle of tax fairness.
Now, thanks to the provision the Senate slipped into the OBBBA, gamblers could face an effective tax rate of 264% in certain scenarios, according to an analysis conducted by KPMG. This phantom income penalty tells players that if you win, you’re good, but if you lose, you’re in bigger trouble than you should be.
To right this wrong, I’m proud to colead the FAIR BET Act with Rep. Dina Titus (D-NV), which would restore the 100% deduction for gambling losses, correcting the course the Senate took on this issue.
The gaming industry supports millions of U.S. jobs and generates billions of dollars in tax revenue that fund schools, infrastructure, public safety, and other essential services in communities across the country. The players who support that industry should not be singled out and penalized for losses in a way that no other industry faces.
The FAIR BET Act restores fairness, consistency, and common sense to the tax code by ensuring that taxpayers are not taxed on income they never actually earned.
As Congress embarks on Reconciliation 3.0, we have the prime opportunity to correct this wrong and restore fairness for millions of people.
PROBLEM GAMBLING: EXISTENTIAL CRISIS OR OVERBLOWN BY MEDIA?
Alongside efforts to lower costs, strengthen healthcare, and eliminate waste, crack down on fraud that drains taxpayer dollars, Congress must reverse course and restore 100% loss deductibility for gamers and gamblers alike.
We cannot let this moment pass us by.
Troy Nehls is a member of the House of Representatives, serving the people of Texas’s 22nd Congressional District.