Should We Tax Facebook and Google So They Change Their Business Models?

 

Paul Romer.
Is Big Tech today as dangerous as Big Money a decade ago? Economist and Nobel laureate Paul Romer seems to think there are disturbing similarities. In a New York Times op-ed, Romer advocates taxing revenue from the sales of targeted digital ads to check the size and power of “dominate digital platforms,” specifically Facebook and Google. “Our digital platforms may not be too big to fail,” he writes. “But they are too big to trust.” Romer’s policy goal is to nudge these companies away from the original sin of advertising-driven business models, and Romer sees a Pigovian tax as a more efficient way to reduce their size and influence than antitrust or regulation. He doesn’t like targeted ads, nor the financial power they generate.

Romer’s approach toward Big Tech might sound familiar to anyone who followed the post-Financial Crisis debate about Wall Street and “too big to fail.” Among the policy options for taming the megabanks and de-risking their business models were regulation, antitrust, or higher capital requirements. That last one, advocates argued, was the most efficient and market-friendly way of making failure less likely, potentially serving as a de facto tax on bigness, or even spurring a self-initiated breakup.

Similarly, Romer thinks his tax would spur a shift from ad-driven business models to one based on subscriptions — otherwise, firms would face ever higher taxes. The progressive nature of the ad revenue tax “would have the added benefit of creating a corporate version of a marriage penalty. When two companies combine, their total tax bill would go up,” according to Romer. Or a large company “might reduce its tax bill by breaking itself into several smaller companies.” With this tax in place, Big Tech would also be less likely to scoop up potential competitors. Congress could even create a Dodd-Frank for tech, Romer adds, defining “systemically important social media platforms that would be required to meet stringent transparency standards.”

Romer won that Nobel for his work on technological progress and economic growth. And when someone whose scholarship helps explain the power and impact of Silicon Valley calls Big Tech a “threat to our social and political way of life,” it’s worth taking seriously. But Big Tech is different than Big Money. The harms from the Financial Crisis were real, measurable, and massive. And recall Paul Volcker’s 2009 quip that while bank risk-taking almost caused a depression, their only useful innovation over the previous 20 years was the ATM.

Less obvious are the supposed harms from Big Tech — at least ones amenable by tax law — as firms continue to create jobs, boost consumer welfare, and spend billions on innovation. All that thanks to the ad-driven business model, the fabulously successful grand bargain of user data in exchange for free services. And what a bargain — at least according to studies which find users say they would need to be paid hundreds or thousands of dollars to abandon search and social media offerings that are currently free.

A different business model might well make different demands on user data and privacy, but social media might also continue to be, as Romer describes it, “a haven for dangerous misinformation and hate speech that has undermined trust in democratic institutions.” And it’s not like tech companies aren’t already thinking hard about pivoting to new business models. Romer has proposed a clever idea, but its simple elegance hides some potentially messy and complicated consequences.

Published in Economics, Technology
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There are 14 comments.

  1. Member

    I don’t agree with using tax law to force compliance with . . . whatever policy prescriptions are desired.

    Taxes should not be used as weapons. That’s what Democrats do.

    Instead of using tax law, use law law. Let the individuals who are being silenced on social media sue them into oblivion. They have no defense. They hide under the umbrella of “we’re a platform, not a publisher,” but they’re clearly behaving like publishers.

    Don’t tax them to make them behave. Sue them.

    • #1
    • May 7, 2019, at 5:09 PM PDT
    • 11 likes
  2. Member

    DrewInWisconsin (View Comment):

    I don’t agree with using tax law to force compliance with . . . whatever policy prescriptions are desired.

    Taxes should not be used as weapons. That’s what Democrats do.

    Instead of using tax law, use law law. Let the individuals who are being silenced on social media sue them into oblivion. They have no defense. They hide under the umbrella of “we’re a platform, not a publisher,” but they’re clearly behaving like publishers.

    Don’t tax them to make them behave. Sue them.

    I’ve been pointing this out for a while now. Google and Facebook and the rest are being protected by the government with what amounts to a legal fiction. It’s time for someone to point out that they can have it one way or the other, but not both.

    • #2
    • May 7, 2019, at 5:38 PM PDT
    • 6 likes
  3. Member

    “social media might also continue to be, as Romer describes it, “a haven for dangerous misinformation and hate speech that has undermined trust in democratic institutions.””

    Because traditional media is a lighthouse of objective information and balanced reporting. And institutions must not be questioned, because to do so would be blasphemy.

    • #3
    • May 7, 2019, at 5:39 PM PDT
    • 4 likes
  4. Member

    Read this post at Powerline regarding the latest Google attempt to censor speech that is not in support of its political preferences, when they tried to kill the Claremont Institute.

    The answer, though, is not to invoke special taxes, it is to encourage everyone to set either Bing or Duck-Duck-Go as the default search engine. If we could dig far enough into Google’s market share that they notice, it would have more effect than any tax.

    • #4
    • May 7, 2019, at 5:51 PM PDT
    • 7 likes
  5. Thatcher

    And what makes anyone think that taxing them will change their business model? It may increase their cost of doing business, but it probably won’t change the model. It’s too lucrative for that.

    • #5
    • May 7, 2019, at 8:31 PM PDT
    • 1 like
  6. Member

    RushBabe49 (View Comment):

    And what makes anyone think that taxing them will change their business model? It may increase their cost of doing business, but it probably won’t change the model. It’s too lucrative for that.

    Google has $64 billion in the bank. There’s no way to tax that without breaking the Internet.

    • #6
    • May 7, 2019, at 9:13 PM PDT
    • Like
  7. Thatcher

    My question is, what kind of taxes do they pay in the first place?

    • #7
    • May 8, 2019, at 6:38 AM PDT
    • 1 like
  8. Lincoln

    dnewlander (View Comment):

    RushBabe49 (View Comment):

    And what makes anyone think that taxing them will change their business model? It may increase their cost of doing business, but it probably won’t change the model. It’s too lucrative for that.

    Google has $64 billion in the bank. There’s no way to tax that without breaking the Internet.

    It would actually be more functional to be able to tax all the Internet trolls who post on Google’s YouTube comments pages, as well as posting on Twitter, Facebook and other social media outlets. It would be equally as unfair as taxing the companies to control behavior, but if the trolls were paying a nickle in tax money every time they posted a new piece of bile, it would control behavior.

    • #8
    • May 8, 2019, at 6:53 AM PDT
    • Like
  9. Coolidge

    Drew:

    I don’t agree with using tax law to force compliance with . . . whatever policy prescriptions are desired.

    Taxes should not be used as weapons. That’s what Democrats do.

    Instead of using tax law, use law law.”

    Normally I would agree with these sentiments completely. However, these are troubling times. Using taxes to facilitate an outcome that would help the General Welfare is not illegal or unconstitutional by any means. It is just not the preferred way to do things.

    All that said the likelihood that the appropriate compliance of current law or that new law will be passed to control the rank slanted political censorship of the media companies, will happen at all, or that the desired effect will be achieved is probably nil in the near future – not with the Democrats holding Congress, not with so many Anti-Constitutional judges and not with so many bureaucrats in league with the Stalinists. A new tax- a very high new tax – may work where the other legal remedies likely will fail at least in the near term. 

    If you read other posts of today here at Ricochet, Free Speech, particularly Political Free Speech is under direct assault by the Media companies and even some of the credit card companies. These companies have the means to drag this fight on for years and may even win the fight in the end in the courts given the disposition of our current justice system. Either of those scenarios may doom our Republic- we need to act now! 

    • #9
    • May 8, 2019, at 6:56 AM PDT
    • Like
  10. Member

    DrewInWisconsin (View Comment):

    I don’t agree with using tax law to force compliance with . . . whatever policy prescriptions are desired.

    Taxes should not be used as weapons. That’s what Democrats do.

    Instead of using tax law, use law law. Let the individuals who are being silenced on social media sue them into oblivion. They have no defense. They hide under the umbrella of “we’re a platform, not a publisher,” but they’re clearly behaving like publishers.

    Don’t tax them to make them behave. Sue them.

    When the most ready items in one’s toolbox are a hammer and sickle, everything looks like tacks.

    • #10
    • May 8, 2019, at 11:22 AM PDT
    • 2 likes
  11. Listener

    Interesting question. Should we tax them? Will taxing them make them less dangerous to national security and classified intel issues?

    Perhaps, they ought to be treated as one of the single largest national security weakness on the porous passive side, and as pro-active suppliers of the tech and know how they debuted on the world stage and seemingly financially assisted and helped build the a way to run a totalitarian surveillance society { Updated: I’m referencing regimes like China here.} answerable to no other power for arbitrary enforcement of laws and unregulated cruelty more efficiently than even the most imaginative sci-fi writers have used in their fictional works of mass despotism .

    (I’m trying to cut Zuck some slack for being,as I was at his age: naive, and looking for any new way to check-out and rate good-looking girls…but, the unintended consequences of naive utopianism seem proportionate in disaster to the power to use a brand-spanking new tech to create a utopian lovefest if we but communicated on a social network, yknow?

    • #11
    • May 8, 2019, at 11:58 AM PDT
    • Like
  12. Member

    I don’t really understand why they can’t be treated as a platform others can use but they have no control over content, no say, they just charge a user fee, a public utility monopoly.

    • #12
    • May 9, 2019, at 11:12 AM PDT
    • Like
  13. Moderator

    The problem Paul Romer is apparently trying to solve is targeted ads. Am I alone in not minding targeted ads? If I’m visiting a web site that delivers free content and is supported by ads, I’m going to see ads of some kind if I’m not using an ad-blocker. Why should I object that they are targeted. If I’ve been shopping for sneakers and a few ads are displayed on other sites telling me that a certain store has Asics sneakers on sale, that’s possibly to my benefit. It’s more useful to me than seeing random ads for herpes medicine or Grandma’s Old-Fashioned Tuna Cakes. Are people afraid that other people cannot resist the compulsion to buy things when they see ads?

    • #13
    • May 10, 2019, at 10:46 AM PDT
    • 1 like
  14. Member

    Randy Weivoda (View Comment):

    The problem Paul Romer is apparently trying to solve is targeted ads. Am I alone in not minding targeted ads? If I’m visiting a web site that delivers free content and is supported by ads, I’m going to see ads of some kind if I’m not using an ad-blocker. Why should I object that they are targeted. If I’ve been shopping for sneakers and a few ads are displayed on other sites telling me that a certain store has Asics sneakers on sale, that’s possibly to my benefit. It’s more useful to me than seeing random ads for herpes medicine or Grandma’s Old-Fashioned Tuna Cakes. Are people afraid that other people cannot resist the compulsion to buy things when they see ads?

    Yes.

    Actually, they’re afraid that other people will vote the wrong way simply because they see the wrong ads.

    In Psychology, this is called “Projection”.

    • #14
    • May 10, 2019, at 4:04 PM PDT
    • Like