In 1986, a professional poker player named Billy Baxter fought the law, and the law didn’t win. Baxter v. United States was a landmark decision that forever changed the lives of American professional poker players from that day forward.
Prior to this, Baxter, like all poker professionals, had been taxed on his poker winnings as if what he had done was simple luck, such as winning the lottery—a whopping 70% based on the tax code at that time. However, Baxter argued that poker is a game of skill—he was not just stumbling aimlessly into good fortune the way people who play actual games of chance like roulette, craps, and slots occasionally do.
As such, he deemed he should be taxed under the “Personal Service Income” code at the time, similar to other skilled trades, which had a maximum rate of only 50%. Billy felt the government owed him 20¢ back for every dollar he had been taxed on, and when the arguments were all over, the Ninth Circuit Court of Appeals agreed with him.
Please allow me to explain how poker is different from other methods of gambling.
A true professional poker player is someone who consistently wins, and there are thousands of them. If it were a game of chance, the winnings would be divided up randomly amongst all parties playing. One person might win more than the other in a short span, but over time, unlike actual games of chance, poker has shown that people can consistently win by employing effective strategies.
A Nevada judge who sided with Billy was quoted as saying to one of his differing-opinion counterparts, “I find the government’s argument to be ludicrous. I just wish you had some money and could sit down with Mr. Baxter and play some poker.” His point being that the dissenters who thought Baxter was just lucky shouldn’t be afraid to play against him with their own money to prove it—there were of course, no takers.
Another important point in his favor is that depending on the variant of poker being played, a high percentage of poker hands are won without any player’s cards being shown. This is due to all other players folding as a result of the actions of the hand winner who may or may not have been bluffing. It cannot be the luck of the cards, when the cards often don’t factor in.
In an amazing feat of skill, poker pro Annette Obrestad famously won a tournament online without ever looking at her own cards, simply by employing behavioral analysis of her opponents and the mathematics of odds and probabilities. To argue that this was luck would require a gross misunderstanding of the word luck.
So why is poker and gambling in general treated differently in the eyes of the law?
Well, the historical issue I suspect, is that gambling of any kind is considered a sin in the eyes of many religions. Older repressed generations conditioned people to believe such activities are bad, and like any old dogma, it can take generations before logic wins out over ignorance.
Poker is simply math, game theory, and psychology; fields that are well-respected on their own. But those who don’t play poker simply don’t know that.
Thanks to the movie Rounders, (a phenomenal cast and script; I highly recommend it) and to the Cinderella-story win of Chris Moneymaker at the 2003 World Series of Poker’s (WSOP) Main Event, where a simple $40 entry fee into a lower-level qualifying tournament was parlayed into a $2.5 million dollar payday, poker has started to permeate the mainstream as more people see the allure of this mentally challenging game. The fact that it can also be a decent source of revenue if done right doesn’t hurt either.
Gone are the days of thinking poker players are degenerate gamblers—these folks are often brilliant minds, like M.I.T. grads, Mensa members, or both in the case of award-winning actor James Woods, who often plays in the WSOP Main Event, along with many of his other acting peers like Ray Romano and Jason Alexander.
With Baxter’s 1986 court case win coupled with the evolution of knowledge of poker, you would think poker players were free from government intrusion, but you’d be dead wrong. This brings me to the point of this blog.
On April 15th, 2011, the U.S. government decided to intervene into the law-abiding actions of poker players throughout America. In United States v. Scheinberg, the case that brought about poker’s “Black Friday.” The government shut down three major online poker sites, Poker Stars, Full Tilt, and Absolute Poker. Full Tilt Poker, as it turns out, was engaged in nefarious activity, which I won’t go into here, but here’s a link. The other two sites however are still quite legitimate, albeit outside the U.S.
The issue with this was quite simple. Thousands of people were making a living playing poker on these sites. They weren’t competing with us normal folks for jobs, they already had one. On Black Friday, the government not only infringed on the American people’s right to pursue happiness, but they actually rendered thousands of professional poker players effectively unemployed.
Barack Obama has stated he intended to create jobs during his presidency, so I’ll never understand why he allowed his justice department to put so many out of work.
A recent Rasmussen Poll shows that only 40% of Americans oppose the government allowing and regulating online gambling, and for poker players like me, it is encouraging the majority favor and/or are open to it. But I hope that more limited-government minds will start to get behind the idea of getting government out of the way of those of us who used to like to play online.
Some conspiracy theorists think the government is simply concerned about its ability to collect tax revenues from these players. While this may also be true, logic dictates I shouldn’t engage in such theories without empirical evidence to support them.
There is hope however; on April 30th, 2013, Station Casinos went live with UltimatePoker.com, albeit, only for residents of Nevada.
I believe there is a reasonable libertarian case to be made for a federal gaming commission to exist; protecting our rights to property by ensuring these games are on the up and up, even if the anarchist wing of libertarianism hates me for saying it. But as long as we continue criminalizing online poker, these sites will go outside the U.S., and a good source of income and tax revenue will be lost.
Even if the tax collection issue is real, legalizing it could simply be a matter of requiring online poker sites to submit W-2’s at the end of the year for all winners, or better yet, get rid of income tax in favor of a consumption tax as the Libertarian Party promotes, and stop worrying about it altogether.
Poker players are intelligent and respectable competitors in a sport of the mind, and it’s time to let us play without government intrusion. Whether it’s a game of skill or a game of chance, one thing’s for sure, it’s none of the government’s concern whether I fritter my hard-earned money away on poker when they wouldn’t care if I did so playing golf or on a $40,000 plate from a Democratic fundraiser.
So I implore those of you who don’t play to not be part of the ignorant group of folks who want to take our rights to compete from us based on old biases, but instead, stand with me and repeat the libertarian code, “Mr. politician, mind your own damn business.”