We are talking about a decision by adults to do what they want to do with their own money, said Democrat Representative Barney Frank, who sponsors a bill to legalize online gaming, citing John Stuart Mill's essay On Liberty to make his point.
Frank spoke at a Ways and Means Committee hearing in the House of Representatives.
The House is considering two Internet gambling bills. One would legalize it. The other would require people to declare winnings from online gambling to U.S. tax authorities and set a 0.25 percent tax on wagers of all federally licensed bets.
While the multibillion-dollar Internet gambling industry is not illegal per se, it soon will be illegal for financial institutions to knowingly accept payment in online gaming transactions, under a law that is set to take effect in June.
That law makes an exception for fantasy football and horse racing.
If all states took part, taxing online gambling could raise about $42 billion over a decade, according to the joint congressional tax committee.
Frank first introduced his proposal several years ago, but it could gain momentum this time as lawmakers hunt for money to balance the $1.4 trillion budget deficit.
Washington Democrat Jim McDermott sponsors the tax bill, but not all Democrats back it. Some Republicans favor it, but others cited moral concerns.
People sometimes resort to drastic things when they are strapped for cash, Representative Bob Goodlatte, a Virginia Republican, said. Still, he said states should be able to make the decision on their own.
States can opt out of the law if it passes. Utah and Hawaii ban gambling.
Privately held Harrah's Entertainment, the biggest casino company, backs legalizing online gambling, but not the House bill on taxation.
Rival MGM Mirage said it has no position on the tax bill, but supports legalization and taxation in some form.
The Obama Administration has not taken a position.
(Reporting by Kim Dixon. Editing by Robert MacMillan)