The federal government is considering a major adjustment to the taxation of sports betting that could significantly affect bettors and the broader gambling industry. A proposal to increase the excise tax on legal wagers from 0.25% to 5% has sparked debate among policymakers, analysts, and operators, with projections suggesting the change could generate nearly $100 billion in revenue over the next decade.
Explosive Growth in Legal Wagering
The US sports betting market has expanded rapidly since the 2018 Supreme Court decision in Murphy v. NCAA, which struck down the federal ban on sports wagering. Legal bets grew from roughly $7 billion in 2018 to $167 billion by 2025, with mobile platforms accounting for most activity. By 2024, 38 states and Washington, D.C., had legalized sports betting, each introducing their own tax structures.
Andrew Lautz, tax policy director at the Bipartisan Policy Center, described the growth as “absolutely bonkers,” noting how deeply wagering has become embedded in American sports culture through partnerships between leagues and sportsbooks.
Revenue Implications and Tax Mechanics
Under the proposed 5% federal excise tax, sportsbooks and casinos—the entities responsible for the levy—would contribute an estimated $97 billion between fiscal years 2027 and 2036. A 10% rate could raise $182 billion over the same period. Unlike income taxes on winnings, this tax applies to the total wagered amount, meaning operators may pass costs onto consumers via adjusted odds or pricing.
The federal sports betting tax has remained largely unchanged since 1982. Earlier adjustments dropped the rate from 10% in 1951 to 2% in 1974, settling at today’s 0.25%. The BPC also examined a flat five-cent tax per wager, which would generate only about $1.3 billion over ten years.
Potential Market Shifts
Higher taxation could influence bettor behavior. The BPC projects a 5% rate might reduce activity by 4% annually, while a 10% rate could cut wagers by 10%. Data from states that raised gambling taxes suggest bettors often adjust stakes, keeping overall revenue relatively stable.
There is also concern that higher costs could drive bettors to unregulated or offshore platforms. Lautz noted that participants might “just take their business” to platforms offering similar experiences without the added federal tax.
A higher federal tax might limit states’ flexibility to modify rates or expand legal betting frameworks, potentially constraining growth. Differences in taxation across gambling types—such as poker and slots—could also create loopholes or inconsistencies.
Policy Debate and Next Steps
Proponents argue that increasing the federal excise tax would support federal budgets while aligning sports betting taxation with other “sin taxes” applied to products such as alcohol and tobacco. Critics emphasize potential market distortions, consumer shifts, and state-level constraints.
Ultimately, Congress will need to balance expected revenue benefits with potential changes in bettor behavior and the evolving competitive landscape of legal and unregulated markets. The discussion over federal sports betting taxation is likely to remain a defining policy issue in the coming years.
Source:
“Proposed US Sports Betting Tax Could Reshape Market“, news.worldcasinodirectory.com, Apr 4, 2026
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