08/01/2008 12:00AM

Tax reform would mean huge gain


SARATOGA SPRINGS, N.Y. - The Parimutuel Conformity and Equality Act of 2008, introduced on the floor of the House of Representatives earlier this week, is the most economically important piece of racing legislation before Congress - and not just for the horseplayers whose cash flow woes would be ameliorated.

The elimination of the outdated and uniquely unfair withholding tax on parimutuel proceeds would immediately lead to sharp increase in national betting handle, providing significant new revenue to owners, breeders, trainers, jockeys, and racetrack operators. An industry that can't seem to agree on much of anything should be unanimous and energetic in its support for this crucial bill. It is a lot likelier to be addressed next year than by the current Congress, but now is the time to alert elected officials to its importance.

If you're wondering why you should care about withholding taxes for horseplayers, here's how it works. Currently, parimutuel proceeds (not net winnings) of more than $5,000 are subjected to a 25 percent federal withholding tax if the return on the wager is at odds of 300-1 or more. It's a relic of an era when a $602 payoff was a rare and newsworthy event rather than something that happens several times a day at almost every track in existence because of the addition of trifectas, superfectas, pick fours and pick sixes to American wagering menus over the last 30 years.

In practice, it is preposterous. You can bet $10,000 to win on a 10-1 shot, collect $100,000 and pay no tax. You can bet $6,000 into a pick six, "win" a $5,000 payoff, and have $1,250 confiscated by the government, even though you've already been taxed at a 25 percent takeout rate and even though you've actually lost $1,000.

The "Conformity and Equality" in the bill's title refers not only to that situation, but to the fact that other forms of gambling do not operate the same way. Win ten grand or a million rolling dice or playing roulette in a casino, and Uncle Sam is none the richer or wiser. Even the casino industry has some sympathy for the way we're treated, and the American Gaming Association supports this bill, which would apply to harness and greyhound racing and jai-alai as well as Thoroughbred racing.

The withholdings are substantial, estimated to total around 2 percent of the total parimutuel return to players, or somewhere in the neighborhood of $200 million a year. On Kentucky Derby Day alone this year, Churchill Downs officials estimate that over $2.5 million was withheld from players who cashed tickets worth over $5,000 at 300-1 payoffs. Gambling economists estimate that money returned to players for reinvestment, rather than being taken out of circulation, is cycled through the betting windows another six to eight times. Do the math: That's as much as an extra $1.2 billion to $1.6 billion a year in handle, an overnight increase of 10 percent.

Knock that figure down a little if you like, on the theory that some of the people who hit giant payouts won't bet it all back, but you're still looking at a massive handle spike for an industry that hasn't seen a significant increase in almost a decade and is facing sobering declines this year.

The elimination of withholding would also bring back some high rollers who have either left the game entirely because of it, or moved their action into different pools or even offshore. It would sharply increase the fourth-quarter handle of big players like Mike Maloney, who has described at several conferences how he has to take out a home-equity loan every October to stay in action - because the government's refusal to distinguish between profits and gross proceeds has effectively taxed him at rates as high as 500 percent of his actual winnings.

The bill, initially being sponsored by Rep. Charles Boustany Jr., a Louisiana Republican whose district includes Evangeline and Delta Downs, does not solve the entire gambling-tax mess. The reporting requirements also need to be eliminated or changed, and the Internal Revenue Service needs to allow players to deduct losses from winnings rather than using gross proceeds for Alternative Minimum Tax calculations. But scrapping withholding would be a great start and provide racing with a bigger economic stimulus than anything else on its agenda.

Horseplayers, and anyone else who would like to see the national parimutuel handle soar, can follow links from the National Thoroughbred Racing Association's home page ( ), enter his zip code, and send a letter to his Congressman. It's more than worth the few clicks.