Internet Explorer 11 is not supported

For optimal browsing, we recommend Chrome, Firefox or Safari browsers.

Should Big Tech Be Taxed for Using Our Data?

There's a growing movement to, but some say it's a misguided policy.

Tech companies have gotten really good at tracking our online behavior and placing ads tailored to our interests. They make billions of dollars doing so, and for years, there have been calls for governments to take a cut of the action.

Most recently, California Gov. Gavin Newsom called for a "data dividend," saying that “consumers should also be able to share in the wealth that is created from their data."

But as one lawmaker in New York is finding out, implementing a data tax on big tech has some complications.

"We took this idea and started vetting it with policy experts and economic experts, and there was pushback [because] if we take this route, we’re actually validating the extractive and abusive practice by tech companies," says New York Assemblyman Ron Kim.

Instead, Kim is working on legislation to protect consumers' privacy and open the door for them to sue tech companies over the use of their data.

In what he hopes will be model legislation for other states, the bill would apply a “duty of care” standard to the information that consumers provide online, meaning companies like Facebook or Google must anticipate how that information could be misused and take measures to prevent consumers from harm.

In early 2018, Facebook came under fire when news broke that the data consultant Cambridge Analytica harvested 50 million Facebook members’ data for use by political campaigns. Laws already on the books allow consumers to sue Facebook for the privacy breach -- but not Cambridge Analytica.

Under Kim’s bill, New Yorkers could sue both.

"Before we get to the idea of whether people should put their data on these platforms, there should be an understanding of what can and can’t be allowed," says legal scholar Rohan Grey, who founded the nonprofit Modern Money Network and is working with Kim on the legislation.

Kim is still working out the details but hopes to introduce the bill as early as next week.

Meanwhile, the idea of taxing tech companies for the consumer data they use has gained momentum -- particularly abroad -- due to a series of scandals (including Cambridge Analytica's) related to how they collect and store user information. Last year, after new privacy standards took effect, the European Commission proposed new rules for the European Union to ensure that online business activities are taxed in a fair way. The proposal includes a tax when companies sell online ad space (a key source of revenue for Google and Facebook) and a tax on the sale of user-provided data (which Google and Facebook don’t do). Mexico is also considering a tech tax on profits from user data.

Some believe the United States should follow suit.

Saadia Madsbjerg, managing director of the Rockefeller Foundation, estimates that the data brokerage industry reached $250 billion in revenue last year. Just a 0.8 percent tax could have generated $2 billion and helped fund programs to improve consumers' online privacy or to counter identity theft.

“Our data is ours, but it also is not ours,” she argued in a New York Times op-ed. “We trade it away for so much of our experience on the internet. Money from a data tax could begin to counter this trade imbalance.”

But Kim doesn't believe that taxes would discourage companies from making money off, and harmful decisions with, our online data.

“It’s such a lucrative business,” he says, “eventually, they’d be more than happy to pay a fee or tax to keep it going.”


In Other Public Finance News:


An 'Opportunity Zone' Oops

States could be inadvertently subsidizing economic development outside their borders because of how the federal tax breaks from so-called opportunity zones are awarded.

According to a new blog post by the Center on Budget and Policy Priorities, the definition of state income taxes (in most places) is linked with the federal one. Because of this, expert Michael Mazerov warns, states will automatically give their residents who have invested in opportunity zones anywhere the same tax break that the feds have promised.

Currently, for example, Maryland residents who invest money in an opportunity zone in California could get a tax break on their federal and state income taxes even though that investment will benefit another state. 

If states don’t decouple their income taxes from federal opportunity zone tax breaks immediately, warns Mazerov, “they’ll forgo revenue needed to fund education, health care, roads and other critical building blocks of robust, inclusive economies to subsidize investments that will often occur in out-of-state OZs.”


Show Me the Infrastructure Money

President Trump and Congressional leaders met this week about the ever-pending federal infrastructure plan and emerged with something new: a $2 trillion price tag.

That’s twice the number floated last year. But other than that, details are few and the biggest question -- where the money will come from -- remains to be seen.

The lack of clarity on how the federal government will support state and local governments in much-needed infrastructure investment has been a frustrating theme over the last two years. All the more reason, says Fitch Ratings’ Cherian George, that an infrastructure plan be tasked to experts.

“This is a job for independent, nonpartisan infrastructure commissions with experts, not a job for politicians,” he wrote this week. “Elected officials need to accept that fact.”

This appears in "The Week in Public Finance" newsletter. Subscribe for free.

Liz Farmer, a former Governing staff writer covering fiscal policy, helps lead the Pew Charitable Trusts’ state fiscal health project’s Fiscal 50 online resource.
From Our Partners