The voices of Tax Policy Center's researchers and staff
Since the pandemic hit in March 2020, millions of families like mine are spending more time online. We're working, learning, socializing, shopping, streaming, all of us fueling an "attention economy" that’s been turbocharged by a pandemic-inspired “boredom economy."
As a result, the tech industry is thriving. According to The Wall Street Journal, the combined stock market value of the five largest tech companies in the US climbed to $8 trillion over the past year. Their combined revenues grew by 20 percent to $1.1 trillion and profits increased by 24 percent.
That’s a lot of money, especially at a time when so many other businesses and governments have struggled financially. Tech firms pay taxes on their income, but at relatively low worldwide rates. Should they pay a new, separate tax on the data they collect?
Last fall, the Netflix documentary “The Social Dilemma,” raised the question to 38 million viewers. Its argument: Companies like Google and Facebook use free websites and apps to collect massive amounts of data about individuals that they use to manipulate the behavior of those of us who are online.
The films says all that attention-grabbing can affect the moods of users, particularly teenagers. That sounds scary, especially since Netflix released the documentary just as children started the school year in their bedrooms, in front of a screen.
In the film, one former Google employee offers a solution: “We could tax data collection and processing the same way that you, for example, pay your water bill by monitoring the amount of water that you use. You tax these companies on the data assets that they have. It gives them a fiscal reason to not acquire every piece of data on the planet.”
His economics is a bit off-kilter: If Google makes a dollar by selling my data and pays a 10 percent tax on that transaction, it still is 90 cents better off than had it not collected and sold my data at all.
Still, a parent of teenagers who worries about what big tech is doing to her kids might think the idea makes perfect sense—especially if she knows that first rule of tax policy: If you want less of something, tax it, or, tax what you’re mad at.
But what’s the “it?” And who would tax it?
The Rockefeller Foundation’s Saadia Madsbjerg, writing for The New York Times, offered a suggestion in 2017. “[C]onsider your data as something real and physical, like a car… [that] moves around a real, physical infrastructure… owned and operated by the internet providers.” The…data brokerage industry, traffic[s] “in the actual monetary value of our data, and from it we can begin to map just how much that data might be worth overall.”
But even if policymakers can value that data, who would set a uniform standard for taxing it? For years now, members of the European Union have been debating how to tax revenue derived from digital transactions. For example, they might tax a consumer’s data trail left behind on a firm’s website or app as if it were the sale of advertising space. But the EU has failed to reach consensus on how to do this, and countries are setting up their own digital tax regimes.
US states are confronting the same challenge. My colleague Howard Gleckman reviewed the latest efforts to tax internet advertising revenue and found many of the same problems. He concludes that a system in which every state can levy its own tax, with its own rules, on revenue from products unbound by geography or time, may be destined for chaos and multiple taxation.
It’s safe to bet that a tax on data itself would meet the same fate.
New York State Assemblyman Ron Kim vetted the idea with policymakers and found a different problem: “If we [tax data], we’re actually validating the extractive and abusive practice by tech companies… It’s such a lucrative business… eventually, they’d be more than happy to pay a fee or tax to keep it going.”
But suppose we were to tax data. Would that mean one should tax other kinds of intangible assets that may bring value to whoever holds them — like patents, or intellectual property?
Any such effort misses a more obvious—and simpler—solution. With the corporate income tax, most countries already tax the tech industry on their income, including the earnings they derive from the collection and sale of customer data. But countries may not do this very well. Before creating a new tax on a hard-to-value asset like data, it might be better to focus first on fixing the imperfections of the corporate income tax.
A viewer of that Netflix film might not be willing to wait for that solution. So, if she’s worried about all that data that free websites and apps collect when she visits them, remember, “if you aren’t paying for the product, you are the product.” Companies collect our data—for free—because we agree to give it to them.
It’s hard to tax the thing that we don’t even value.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
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Rene Tillmann, file/AP Photo