What if we taxed advertising?
matthewsinclair.com
matthewsinclair.com
I also wonder if somehow we're trying to seriously reduce advertising what that does to land of the internet where the users of the internet seem to choose / want "free" advertising based products. I'm not convinced folks just suddenly pay and upending that entire economy maybe a serious net negative.
It is tax things that has macro dynamic negative externalities.
And subsidize things that has positive macro dynamic externalities.
(Sorry if this blows up the memory usage ;)
I was just talking with some friends recently about an instance of this: distilling, which is still federally illegal in the US for the primary reason that it provides a lot of tax income if you charge for licenses and tax sales, which is incredibly frustrating because it's easy and safe to make yourself high-quality liquors at a fraction of the price that you'd pay at the store and have a fun hobby to boot.
(pedants: please don't bring up safety issues - it's trivial to realize with five minutes and internet access that distilling isn't significantly less safe than many other unregulated activities in the world as a whole)
This isn't grounded in reality.
Alcohol itself is already dangerous, yet we've managed to figure out how to build cultural elements that mitigate the risks a lot.
You can already buy huge amounts of high-proof alcohol for cheap after you're 21, and most underage kids know someone who could get it for them anyway.
And it's already legal to brew your own alcohol - it's fairly easy to get up to 20% ABV with wine.
And I don't know where you got "unregulated" from. I certainly didn't mention anything about that. Alcohol is already regulated quite heavily - you can't give to a minor or sell without a license, homebrew or not - and legalizing distillation wouldn't change that.
You need to do some research, because you're clearly not familiar with the legal and social environments of the US, at least.
Not to imply that economists are uniform on this or necessarily correct, but there has been work done here.
Equating "things I don't like" with "negative externalities" does not seem like a helpful framing for this discussion. I personally like traveling around the world and eating avocados, but they have substantial negative externalities. I personally dislike watching ballet or eating mushrooms, but they have minimal negative externalities.
Advertising may very well be something that the author dislikes AND that has negative externalities, but the point of a Pigovian tax is solely to apply a price commensurate with negative externalities, not the dislike.
> you to some extent want that activity to occur otherwise you've got budget issues
Perhaps, which is why he mentions "freebates", and why I find revenue-neutral Pigovian proposals like the "carbon-fee-and-dividend" so compelling. The primary purpose is not revenue, it is to ensure the correct price on negative externalities so society can rely on a free market to solve tricky allocation problems.
Businesses will just continue to advertise, and pay the tax. Because all their competitors have to pay the same tax, it's just a status quo. And businesses will raise the prices consumers pay to make up for the difference.
So ultimately it would wind up being a regressive tax, like tariffs, paid for by people in rising consumer prices.
Taxes can only deter behavior when there are alternatives. But there aren't alternatives to advertising. Businesses advertise because it works, because it increases their revenue.
Also, if taxes did slightly reduce demand for advertising, then the price of advertising would just decrease, that would be the main effect. There would probably be a tiny contraction in advertising space, but not enough that anyone would notice.
The main effect would be to raise prices for consumers, not to reduce ads, because there aren't substitutes for advertising.
Plus, of course, the proposal is simplified, and much hand-waving about the details. Who to tax, for what, when, how much etc are all details needing attention.
Already exceptions are proposed. Hint - the exceptions will favor big corporate, against the little guy, not the other way around.
That may be correct if every company spends similar amounts on traditional advertising, but this isn't true. In reality, such a tax would hit companies with larger traditional advertising budgets harder, and make some companies choose to shift some of their marketing spend to other communication methods.
For example, I work for a company that has a small advertising budget with no traditional advertising. We have a website, publish papers, and occasionally have a booth at a conference. Some of our competitors have significant advertising presence in trade magazines, social media, news sites, etc. Therefore this tax would impact them more than it would impact us.
More importantly for the purpose of the tax, it might shift our competitors' behavior. Ad buys that were of marginal utility to the company before would be even less cost-effective so either advertising platforms would lower their prices or the company would not buy the ad. In some cases this lower price would make it no longer profitable for the platform to display, eliminating the ad enteriely.
But most ads you see are for consumer products. Coca-Cola, cell phones, soap and shampoo, cars, fast-food brands, toys. These don't have anywhere to shift to. Dove soap isn't going to switch to reaching people by newsletter. They'll just pay the tax and pass on the costs to consumers. The vast bulk of advertising simply wouldn't change at all.
And like I said, even with a slight drop in demand, the main effect would be to lower advertising prices, not reduce advertising space.
Advertising spend is elastic, even for consumer products. Companies don't commit to a certain level of advertising regardless of cost, they carefully evaluate the ROI of each advertising buy. The primary purpose of the proposal to increase the cost of ads is to reduce the ROI of advertising and therefore reduce the amount of ads across the board.
For example, Coca-Cola has competitors that spend significantly less on advertisements, which is a major reason store brand cola often costs less. Same with Dove, I see far fewer ads for store brand soap or brands like Dr Bronners. Same with fast-food chains like McDonalds which spends about an order of magnitude more on ads than many of their competitors.
Brands that advertise heavily typically charge a premium to cover the cost of their advertisements and many customers are willing to pay more for heavily-advertised products. But consumer preference for advertised brands is not unbounded. If Dove soap costs 10x more than store brand soap to cover the increasing cost of their advertising budget then more consumers will switch to store brand soap no matter how many Dove commercials they see. Therefore, Dove must calibrate their advertising budget to balance the cost of advertisements against the expected premium they can charge over their less-advertised competitors.
(Whereas something like a tariff on raw materials would affect companies more broadly -- it's a lot easier for a car company to run half as many ads than to make a car with half as much aluminum.)
> the main effect would be to lower advertising prices, not reduce advertising space.
Edited to note that the prices charged by advertising platforms cannot go lower than the cost to deliver the ad. It costs money to run a search engine, create TV shows, or construct a billboard, so if it the price a company is willing to pay for an ad on that platform goes below a certain point then the advertisement is no longer economically viable and does in fact disappear. Possibly forcing the ad-supported service to adapt (e.g. paid video) or disappear entirely (e.g. billboards).
I'm assuming that taxes on advertising would be in line with or even a bit higher than most other taxes, like 20% or maybe even 50%.
You're talking about taxes maybe around 10,000% to multiply the price of Dove soap by 10x, if Dove currently spends 10% on marketing.
Yes, at that level of course advertising disappears and advertiser-supported businesses fold. But if that were the desired outcome, I don't think a government would bother with taxes. They'd just ban advertising.
But if we're talking about a tax like 40%, I don't think consumers would ever notice a difference in the amount of advertising. Products would just cost a little more and advertising rates would be a little less and ABC will just make slightly cheaper TV shows to offset it. You'd still have 8 minutes of commercials for every 22 minutes of content.
I don't think so. I used an extreme example to make the effect obvious, but a 20% tax will have a similar effect at a smaller magnitude.
> Products would just cost a little more
The point is that this increase is not uniform. Consumer product advertising budgets already vary by an order of magnitude from less than 5% of sales revenue to more than 25%. This already results in price disparities e.g. between white-label products and brand-name products. Therefore, brand-name products for which advertising is a nontrivial fraction of their budget will experience an increase that is an order-of-magnitude larger than generic products. This will alter consumer purchasing decisions and force companies to respond.
Every brand considers advertising ROI carefully e.g. at what point will an extra dollar spent on advertising yield less than an extra dollar of income. Taxing ads simply shifts this equilibrium point.
"The provision of a social media service, internet search engine or online marketplace by a group includes the carrying on of any associated online advertising service. An associated online advertising service is an online service that facilitates online advertising and derives significant benefit from its association with the social media service, search engine or online marketplace."
Google Ads for instance invoices the tax to their customers. https://support.google.com/google-ads/answer/9750227?hl=en-G...
The digital services tax was a limited counter to aggressive tax avoidance by US multinationals. Unfortunately, even though it's peanuts in the grand scheme of things, it's looking like it'll get offered up as sacrifice to the King in Orange.
UK corporations are expected to pay ~20% corporation tax, individuals pay _substantially_ more on their incomes. We've got a generation that've had to endure continual cuts to public services because "there's no money left", whilst foreign corporations make money off our public virtually tax free.
Google, Facebook etc., should pay their way or get out of our market.
I'm sorry, but until we can find a way to close down the countless other tax loopholes exploited by multinationals, I'd be completely happy with a 10% DST on any advertising targeting UK citizens. Low-hanging fruit.
I think those talks have ultimately stalled, so the right solution is getting back on track to a global tax system.
(Interestingly the deal struck in 2021 exchanged the promise of no US tariffs with the transition away from DST. It's no surprise this is a hot topic again with Trump's tariff regime.)
What if we made advertising illegal?
"What if we looked at advertising, but not for too long?"
Also I'd say lets only tax undesirable behaviour!
So not tax:
* wages
* having a house
* adding value (VAT)
But so tax:
* land use
* polluting
* packaging (could be part of polluting)
* accumulating profits at the top
This idea has some similarities to:
My cousin died to protect your right to say this. Ads are speech too.
I can say "you should get the vaccine!" Companies that want to say these kinds of things have rules to abide by: and thanks fully so.
I'm much for free speech, but more in the sense that we should be able to discuss policy/politics/critique/bitch/bash/religions/etc. Not so we can make terror plans, defame, harass, bully and share child porn.
Not sure what happened to your cousin... But I'm curious now. Care to share?
My cousin served in the Armed Forces "to protect your freedom" (his words). The fact that he died during training maneuvers, does not detract from that.
But personally when I look the US' history of military interventions then I sadly have to conclude he was made to believe he did it for "our freedom". A good facade for a dirty business. In fact he did it for corporate and Israel's interests. And probably he personally did it for the money and "cool job status" too.
Only the US population seems to, on average, favour going to war.
Still feel bad for your cousin.
The recent past should tell you that a lot of what some would call legitimate critique/bitch/bash etc. others would call harass/bully/violence –to also include not speaking about it at all.
So in the interest of consistency, and publicity, I'd prefer to let the bigots of the world speak, and out themselves as bigots, so that we may then publicly speak and make fun of them for being bigots. The same goes for corporations.
Children, adults, people-in-positions-of-power and corps should be held to different standards.
I've seen banks offer "quick loans" specifically to vulnerable adults. Same with the opiod crisis: some big pharmas dont mind pushing the message that "patients should talk to their doctors about XYZ". Corps can do much more harm than individuals.
But here's a different take: unsolicited advertising is theft. It is the "fractional penny" heist perpetrated by the industrial advertising complex upon all of us, all of the time.
Hear me out. You have a finite amount of mental attention that you can give in any given environment. Advertising companies are selling access to bits and pieces of this finite resource of yours. Sometimes they do this with your consent in advertising supported products you seek out (e.g. free YouTube or Spotify) and this is fine.
But often you have not consented to spend your attention on their ads. You probably weren't laying on the beach, staring into the sky hoping to find the phone number of a personal injury attorney being towed behind an airplane. Or the latest weight loss drug plastered on the side of a city bus. Or 15 garbage pamphlets jammed into your mailbox.
There's a reason all the dystopian, sci-fi media shows the beleaguered protagonist assaulted with personalized ads in holograms and on every surface. Because that is exactly where we're headed just as soon as they figure out how to do it if we don't legislate this shit away.
If watching ads is a valid way of "paying" for youtube, then what is the service/benefit you receive for watching ads in the sky?
I thought this, too, but I can't find data to support the idea.
EVERYTHING is an argument for iterative policy. Problem is the political system is presently incapable of it.
We have to upgrade democracy first. We can tackle any challenge once politicians have proper incentives.
However, I'm skeptical that the US would adopt such a complex and pro-consumer regulatory framework. Perhaps once the EU goes through a few iterations we'll get a watered-down version here.
A fine is a price.
If it's just a price, it's acceptable to do it. People who can afford it will do it. People who profit more from doing it than they're fined or taxed will do it forever.
The only way to stop a harm is to have a population that's on board with criminalising it, a law system that's empowered to stop it and prosecute it, and have a chain of escalating remedies all the way up to physical prevention (e.g. incarceration, or corporate death penalty)
We don't let people shit in the river. We don't let companies shit in the river. We know the harms. Advertising is shitting in your brain.
in any case, ads are speech, and speech is protected. funny seeing this litigated over and over again here. it's actually concerning how many people on here want to ban speech because it's paid for.
But it is a good point. If this were to make it into law then we need some sort of threshold.
The human race and every individual of that race has no background to understand how to operate in an environment where the magnitude of the number of others that can do everything they can do, can do it better, and for less salary creates a new situation we as a society do not know how to manage.
The situation has created billionaire oligarchs with more wealth and power than any individual that has ever lived. These powerful individuals are without the foundation nor maturity to navigate themselves without large amounts of self serving immaturity.
We need to, as a group large enough to make a cultural difference, acknowledge that all our evolutionary preparation and modern educations do not prepare us for what we face today, and our institutions we use to govern our civilization are not prepared for the power weld by modern oligarchs. They have the resources to perform selfish and shortsighted changes to all of society for their benefit alone. If history teaches the human race anything, situations such as this create monsters. We need to acknowledge we are creating monsters and they are our leadership class.