Proposed Sports Betting Tax Hike Raises Concerns Over Unintended Consequences

Analysts warn that a federal excise tax increase could drive bettors to illegal markets and limit state policy flexibility.

Apr. 3, 2026 at 1:35pm

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A photorealistic studio still life featuring a stack of casino chips, a sports betting ticket, and a calculator, arranged elegantly on a clean, monochromatic background to symbolize the abstract concepts of corporate strategy, finance, and risk in the sports betting industry.A conceptual still life captures the complex financial and regulatory landscape surrounding the booming sports betting industry.NYC Today

The Bipartisan Policy Center (BPC) has analyzed a proposal to significantly increase the federal excise tax on legal sports betting, which could generate nearly $100 billion in revenue over 10 years. However, analysts warn that a substantial tax hike comes with risks, including the potential for driving gamblers away from legal, regulated platforms and toward illegal black markets, as well as limiting state policy flexibility on taxation.

Why it matters

The sports betting landscape has been transformed since the Supreme Court's 2018 decision in Murphy v. NCAA, which struck down a federal law that had largely prohibited the practice. The explosion of legal sports betting, fueled by user-friendly mobile apps, has led to a surge in wagers, from $7 billion in 2018 to $167 billion in 2025. While states have established their own tax structures, the federal excise tax has remained at just 0.25% since 1982. The proposed increase to 5% aims to align with other 'sin taxes' on alcohol and tobacco, but it could have unintended consequences.

The details

The BPC report considered a policy option that would increase the federal excise tax on legal sports wagers from the current 0.25% rate to 5%. This would be more than the average federal excise tax on a six-pack of beer (33 cents) but less than on a pack of cigarettes ($1.01). The tax's legal incidence would fall on the sportsbook or casino, but the economic incidence would likely be passed on to the gambler through less favorable betting lines. Prior to 2026, gamblers could fully net their winnings and losses for tax purposes, but a recent change limits the deduction for gambling losses to 90% of winnings.

  • The Supreme Court's decision in Murphy v. NCAA was made in 2018, striking down a federal law that had largely prohibited sports betting.
  • As of the end of 2024, 38 states and Washington, D.C., had legalized sports betting, with 32 of them taxing the activity.
  • Prior to 2026, gamblers could fully net their winnings and losses for tax purposes, but a change under the One Big Beautiful Bill Act limits the deduction for gambling losses to 90% of winnings.

The players

Bipartisan Policy Center (BPC)

A nonprofit organization that conducts research and analysis on public policy issues, including the proposal to increase the federal excise tax on legal sports betting.

Andrew Lautz

Tax policy director of the Bipartisan Policy Center, who provided analysis on the proposed tax increase and its potential impacts.

Fredrick Hernandez

Policy analyst at the Bipartisan Policy Center, who co-authored the brief on the proposed tax increase.

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What they’re saying

“The sports betting landscape has been completely transformed since 2018, when the Supreme Court's decision in Murphy v. NCAA struck down a 1992 federal law that had largely prohibited the practice. The ruling 'effectively allowed states, any state, to legalize sports betting,' said Andrew Lautz, tax policy director of the Bipartisan Policy Center, leading to what he described to Checkpoint as 'absolutely bonkers growth.'”

— Andrew Lautz, Tax Policy Director, Bipartisan Policy Center

“The primary argument for raising the tax is the substantial revenue it could generate, which the BPC report notes 'could modestly help plug growing federal budget deficits.' Proponents also argue that it would create parity with other sin taxes designed to address social costs.”

— Andrew Lautz, Tax Policy Director, Bipartisan Policy Center

What’s next

The Bipartisan Policy Center's proposal to increase the federal excise tax on legal sports betting will now be considered by Congress, which will weigh the potential revenue gains against the risks of driving bettors to illegal markets and limiting state policy flexibility.

The takeaway

The proposed federal excise tax hike on legal sports betting raises concerns about unintended consequences, such as driving gamblers to black markets and restricting state-level tax policies. Policymakers will need to carefully balance the potential revenue benefits with the potential drawbacks to ensure the tax increase does not undermine the goals of regulation and revenue collection.