Federal Sports Betting Tax Hike to 5% Could Raise $97B

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March 21, 2026

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The Bipartisan Policy Center has released projections showing that a federal sports betting excise tax increase from 0.25% to 5% could raise $97 billion over a decade, reshaping the economics of a U.S. sports wagering market that now spans 38 states. The proposal, linked to ongoing debate over the Professional and Amateur Sports Protection Act (PAPSA) framework, arrives as Congress searches for new federal revenue streams without broad income tax hikes.

Bipartisan Policy Center Projects $97 Billion From a 5% Federal Sports Betting Tax

Where the Current 0.25% Rate Comes From

The federal excise tax on sports wagering has sat at 0.25% of handle for decades, a relic of an era when legal sports betting barely existed outside Nevada. The Professional and Amateur Sports Protection Act of 1992 effectively banned the practice nationwide until the Supreme Court struck it down in Murphy v. National Collegiate Athletic Association in May 2018. Since that ruling, legal sports wagering has expanded rapidly, making the existing tax rate look increasingly out of step with the industry’s scale.

Today, Americans legally wager hundreds of billions of dollars each year across platforms operated by companies including DraftKings, FanDuel, and BetMGM. The 0.25% rate was designed for a niche market; it was never recalibrated for a national one. That gap is precisely what the Bipartisan Policy Center’s new analysis targets.

The Bipartisan Policy Center, a Washington-based think tank founded in 2007 that draws staff and advisors from both major political parties, modeled multiple tax rate scenarios to estimate their revenue and behavioral effects. Their findings give lawmakers a concrete set of numbers to work with as federal budget negotiations intensify.

How the 5% Rate Was Modeled

The center’s analysts projected that a 5% federal excise tax on sports betting handle would generate $97 billion in cumulative federal revenue over a ten-year window [1]. That figure assumes continued market growth in states that have already legalized wagering, plus gradual expansion into states still weighing legalization. The model also accounts for behavioral change: at a 5% rate, the number of individual bets placed is estimated to fall by approximately 4% annually [1].

A 4% annual decline in bet count sounds significant, but the policy group’s analysis draws on past state-level tax increases to argue that handle, meaning the total dollar volume wagered, does not fall proportionally. Bettors tend to place fewer, larger wagers rather than exit the market entirely. This behavioral pattern means tax revenue holds up even as bet frequency drops.

The center also modeled a more aggressive 10% rate. At that level, the ten-year revenue projection climbs to $182 billion, which would make sports betting the second-largest federal excise tax in the country, trailing only the excise tax on tobacco [1]. That scenario represents a more dramatic restructuring of the federal tax code and would face steeper political resistance from the gambling industry.

A 4% Bet Decline Would Not Materially Dent Sports Wagering Revenue

What State-Level Evidence Shows About Tax Hikes

Critics of higher sports betting taxes often argue that raising rates will simply push bettors toward illegal offshore books, collapsing the legal market. The Bipartisan Policy Center’s research challenges that assumption directly by pointing to state-level data. Several states, including Illinois and New York, have raised their sports betting tax rates in recent years, and neither experienced a collapse in taxable handle or operator revenue [1].

New York currently levies a 51% tax on mobile sports betting gross gaming revenue, the highest in the nation, and its market generated over $2 billion in gross gaming revenue in 2023 alone, according to reporting by casino.org [1]. Operators have complained loudly about New York’s rate, but bettors have not abandoned the platform in meaningful numbers. The lesson: demand for legal sports wagering is less price-sensitive than the industry’s lobbying suggests.

Past state tax increases show declines in bet volume but not material drops in handle or collected revenue, a finding the Bipartisan Policy Center uses to anchor its federal projections [1]. If the same pattern holds at the federal level, a 5% excise tax would represent a substantial revenue gain with manageable market disruption.

Who Bears the Cost of a Higher Excise Tax

Federal excise taxes on sports betting are levied on operators, not directly on bettors. However, operators can and do pass costs through to customers via adjusted odds, reduced promotions, and tighter lines. A move from 0.25% to 5% would increase the operator’s tax burden by a factor of 20, a shift large enough to meaningfully alter how companies structure their offerings.

Smaller regional operators and tribal gaming enterprises could feel the squeeze more acutely than national platforms with diversified revenue streams. DraftKings and FanDuel, which together command roughly 70% of the U.S. online sports betting market, have the scale to absorb margin compression more easily than a single-state operator. The competitive dynamics of the industry could shift further toward consolidation if the tax hike passes.

Congress would also need to address how the new revenue is allocated. Some advocates have proposed directing a portion toward problem gambling treatment programs, public health initiatives, or deficit reduction, each of which carries different political coalitions and legislative hurdles.

Federal Sports Betting Tax Rates in Context: 2024 Market Data

The U.S. legal sports betting market did not exist at meaningful scale before May 2018. In the six years since the Supreme Court’s Murphy ruling, 38 states plus Washington D.C. have legalized some form of sports wagering. The American Gaming Association estimated that Americans legally wagered $119.84 billion on sports in 2023, up from $93.2 billion in 2022, a growth trajectory that makes the federal tax base far larger than it was when the 0.25% rate was last reviewed [1].

At $119.84 billion in annual handle, a 0.25% federal excise tax yields roughly $300 million per year. A 5% rate applied to the same handle would yield approximately $6 billion annually, before accounting for any behavioral adjustment. Even with the projected 4% annual decline in bet frequency, the revenue gain over a decade reaches the $97 billion figure the Bipartisan Policy Center cites [1].

The 10% scenario, which would produce $182 billion over ten years, would rank sports betting among the most productive excise taxes in the federal system. For comparison, the federal tobacco excise tax raised approximately $12.5 billion in fiscal year 2023, according to the U.S. Treasury. A 10% sports betting levy at current and projected handle levels could approach or exceed that figure within a few years of implementation.

The PAPSA debate adds a legislative layer to the tax discussion. Any federal move to standardize or tax sports betting more aggressively reopens questions about the federal government’s role in regulating an activity that states currently control. Operators and state governments that have built revenue models around existing frameworks will resist federal encroachment, making the political path for any rate increase genuinely difficult.

For Health-Conscious Readers: How Gambling Tax Policy Touches Personal Finance

If you follow dental and cosmetic health spending, you already know that discretionary budgets are finite. Sports betting competes directly with out-of-pocket health expenses, including orthodontic treatments, teeth whitening, and cosmetic dental procedures, for the same pool of disposable income. A tax-driven increase in the effective cost of sports wagering, whether passed through as worse odds or reduced promotions, could nudge some consumers to redirect that spending toward health priorities they have been deferring.

The broader policy point is simpler: federal excise tax revenue raised from sports betting could, depending on how Congress allocates it, fund public health programs that reduce the financial burden on individuals. That is a long chain of policy decisions, but it is the honest connection between a sports wagering tax debate and the readers who prioritize their health and wellbeing.

Key Takeaways

• The current federal excise tax on sports betting is 0.25% of handle, set decades before legal wagering expanded nationally after the May 2018 Supreme Court ruling.
• The Bipartisan Policy Center projects that raising the rate to 5% would generate approximately $97 billion in federal revenue over ten years [1].
• A 5% tax rate is estimated to reduce the number of individual bets placed by about 4% annually, but historical state data shows handle and collected revenue remain stable [1].
• A 10% federal excise tax would raise an estimated $182 billion over ten years, potentially making it the second-largest federal excise tax in the U.S. [1].
• New York’s 51% gross gaming revenue tax on mobile sports betting has not caused a market collapse, with the state generating over $2 billion in gross gaming revenue in 2023.
• 38 states plus Washington D.C. have legalized sports wagering since 2018, creating a national tax base that did not exist when the 0.25% rate was last set.
• Operators such as DraftKings and FanDuel, which hold roughly 70% of the U.S. online market, would bear the primary compliance burden of any federal rate increase.

Frequently Asked Questions

The Bottom Line

The Bipartisan Policy Center’s analysis puts concrete numbers behind a debate that has mostly been theoretical: the federal government is leaving tens of billions of dollars on the table by taxing a $120-billion-a-year industry at a rate designed for a much smaller one. A move from 0.25% to 5% would not destroy the legal sports betting market, based on every piece of state-level evidence available, but it would fundamentally change the economics for operators and, indirectly, for bettors who currently enjoy generous promotional offers funded by thin-margin competition.

The 10% scenario, producing $182 billion over a decade, is the more politically charged option, but it demonstrates the scale of what is available if Congress chooses to act. Whether that revenue goes toward deficit reduction, public health, or other priorities depends entirely on the legislative bargains that accompany any rate change. What the Bipartisan Policy Center has done is remove the excuse that the numbers are unknown.

The sports betting industry will fight any significant rate increase hard, and state governments protective of their own tax revenues will add their voices to that opposition. But the fiscal logic is difficult to argue with: a 20-fold increase in the federal tax rate on one of America’s fastest-growing consumer industries, generating $97 billion without collapsing the market, is exactly the kind of proposal that survives budget negotiations.

Sources

1. Casino.org – Bipartisan Policy Center projections on federal sports betting excise tax rates of 5% and 10%, estimated revenue over ten years, and behavioral impact on bet volume and handle.