A State Sales Tax on Personal Data

I live in Washington. If I go and buy a USB drive for $10, Washington gets about 80 cents. If I buy a copy of Microsoft Word for $100, Washington State gets more than $8.

Services aren’t taxed, but probably should be. If I buy a year of Microsoft Word online, it’s not clear to me why I shouldn’t also pay a sales tax on that product. In both cases, I am merely licensing the software from Microsoft. It seems to me as we’ve moved from products to services we’ve given a real unfair advantages to services here. And since the future of software and media is services, we are creating an untaxable set of products, and slowly starving states of revenue.

But the bigger problem is this — when I use Facebook or Google Docs I don’t pay with cash, I pay with data.  Google gives me use of the Google Docs platform in exchange for collecting valuable information  about the sites I visit, the products I seem interested in, my daily location (tracked by my phone) throughout the day. With a little settings jiggering I can reduce the amount of data I provide, just as coupon clippers can reduce the amount of money they spend. But I can’t ever get the price to zero.

The fact that data is revenue that is not taxed creates perverse incentives to collect it and is also partially behind the downward pressure on state budgets. The data economy exists not only unregulated, but untaxed, and it’s probably no surprise that in a time of massive market capitalizations (based in many cases on accumulated data held by companies) state budgets are dying.

So I propose that states tax the data you provide to corporations such as Google and Facebook. It would be a seller-paid tax, not visible to the customer. But it would capture the value of the data collected (and maybe held as well) on us all.  Doing this would apply at least some brakes on surveillance capitalism, especially if the tax was set relatively high — you can certainly make the case that the data risk created by companies is as great as the damage caused by alcohol sales, which in Washington State are taxed at 17%. And while it may seem absurd, I might even tax the data by the kilobyte.

Why? Because, properly constructed, while such a tax wouldn’t ban the collection of data, it would stop the gathering of data by default. Companies would have to make decisions about whether it was worth collecting and storing every location I go to during the day, every website I visit, every search I plug into a search engine. Heck, it may be the first time that companies would be forced to publicly account the amount for the amount of data they hold on citizens.

And while kilobytes are not a precise measure of either profit or risk, for that matter neither is the alcohol tax. An expensive bottle of wine does no more damage to society than a cheap one, but people pay more taxes on it, and a $10 bottle with a profit of a couple bucks is taxed the same as a $10 bottle with a profit of 20 cents.

In other words, don’t get hung up on the precision of targeting here: look at the potential effect: companies slow down collection of data, state budgets get a desperately needed new budget stream, and as a bonus people who charge money for products might actually have a chance to compete with the surveillance companies like Google. I don’t claim that this proposal has all the details worked out. But it sees to me to be the right thing to do.

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One thought on “A State Sales Tax on Personal Data

  1. Great thoughts. It would be a great way to cover the cost of breaches, regulations, investigations, etc. The spell that tech platforms have on people when it comes to data definitely extends to government. It is so powerful the government hands over their (our) own data to corporations without any evaluation, taxation, or consideration. The spell of big data.

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