Thursday, January 7, 2010

Google Tax

The French have solved the problem of Internet piracy: tax Google. From the AP (via Yahoo):
The report, handed to Culture Minister Frederic Mitterrand on Wednesday, says Google and other Internet portals should be slapped with a new tax on their online ad revenues in France to fund the development of legal outlets for buying books, movies and especially music on the Internet.
Essentially, France wants to subsidize media purchases (read: French media purchases) with a tax on the Internet companies who provide easy access to pirated media. The idea behind this Robin Hood-esque plan is that young people would then find legal avenues to purchase this subsidized and relatively cheap media rather than use Google to find it for free (albeit, illegally). Of course, the opposition cites the parade of horribles that would result from such a tax:
'Where does it start and stop? The argument is that Google has culpability for declining music revenues because people start searches for illegal files often by Google,' said Mark Mulligan, vice president of Forrester Research. But 'what about the computers? Because without the computer people wouldn't be able to download. And then what about the electricity that powers the computer?'
There may be a hint of truth in this slippery slope. A tax on search providers (like Google) is bound to be "leaky". Essentially, if the French are only going to tax Google's French revenues, Google will simply rework its advertising contracts to other EU member states to dodge the tax (the EU is a common market, it can be pretty easy to avoid these kinds of taxes, particularly when they do not involve physical goods in the country). Google will still get its revenue and France will not collect its tax. And if you can't collect the cash from Google - well then just go after the items that cannot easily be moved (like the electricity to the computers that steal the music).

While I sincerely doubt that the French will implement an electricity tax to pay for young people's (French) music tastes, I do believe that France will ultimately set up this type of tax and subsidy scheme. The French have a habit for such interventions into the marketplace, a system affectionately known as dirigisme. But as discussed above, this tax-subsidy system will probably not work and in all likelihood, will wind up driving online advertising revenue away from France.

So why would France bother with such a potentially useless tax? Simple - because it's broke. With record deficits plaguing the developed world, new and novel taxes will begin cropping up to help contain some of the fiscal destruction. The more of a "moral" label a country can place on a tax, the more likely the tax is to be implemented. The French have found a convenient enemy in search providers: they are the gateways to broad-based theft. What better justification to tax someone than the fact that you will use the revenues to right a wrong. A little hint: with 10%+ of GDP deficits, that tax money is just going to wind up in the general fund.

I hope Congress isn't following the French news.

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