Sports betting in the United States has undergone a dramatic transformation since the Supreme Court opened he door to state-level legalisation in 2018. What began as a $7 billion industry has grown to $167 billion in annual handle, fuelled almost entirely by mobile apps that have made placing a bet as easy as checking the score. Today, the vast majority of wagers are placed online, and the states that have embraced legalisation have reaped steady tax revenue as a result.
The federal government, however, has been largely watching from the sidelines. The longstanding federal excise tax on sports wagers sits at just 0.25% — a rate that has not changed in decades — and Washington is now asking whether that figure is still fit for purpose.
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The case for a higher tax rate
Analysts have been running the numbers, and they are significant. Raising the federal tax to 5% could generate close to $100 billion over the next decade. A 10% rate would push that figure to $182 billion between FY2027 and FY2036 — enough to make the sports betting levy the second-largest federal excise tax in the country, behind only the gas tax. The trade-off at that level would be a projected 10% reduction in total bets placed.
A third option — a flat $0.05 per transaction fee — has also been modelled. While it would raise a far more modest $1.3 billion over the same period, proponents argue its long-term impact on reducing betting volume could be more meaningful than its revenue contribution suggests.
The arguments on both sides
Supporters of higher taxes draw comparisons with alcohol and tobacco, arguing that sports betting should be treated as a taxed vice — with revenue reinvested into public services and the higher rate acting as a natural brake on excessive gambling. Concerns about the broader social impact of betting, including financial hardship for problem gamblers and the growing normalisation of wagering within sports culture, add weight to the case for intervention.
Critics, however, raise a familiar counter-argument: higher taxes risk pushing bettors toward unregulated offshore markets. Illegal betting networks already exist, and making the legal market more expensive could make them more attractive. States that depend on betting tax revenue also have reason to be cautious — a significant drop in activity would hit their coffers too.
A tax change already in effect
One shift has already landed for American bettors. From 2026, gamblers can no longer fully offset their losses against winnings when calculating federal taxes — meaning some players could owe tax even if they effectively break even over the course of a year. It is a change that has already caught the attention of regular bettors, and a sign that the regulatory and fiscal environment around sports betting is tightening.
The broader debate over federal tax rates remains unresolved, but with a $167 billion industry generating relatively modest federal revenue, it is a conversation that Washington is unlikely to let rest for much longer.
