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Feb. 27, 2019, 11:50 a.m.
Business Models

A tax on digital ad spend (*cough* Facebook and Google) could bring in $2 billion for journalism

Free Press is suggesting an analog to a carbon tax on fossil fuels — but atoning for the attention economy’s perils instead of climate change.

Facebook and Google aren’t going to stop targeting ads to Internet users, and advertisers aren’t likely to stop loving the data that get their wares in front of super-specific eyeballs. So could a tax on those billions of targeted ad dollars be what it takes to help support journalism of value?

A new paper from advocacy group Free Press (the same folks who are close to getting the New Jersey government to budget money for local news innovation) argues that tax revenue devoted to quality journalism could be a silver lining in the very tool that foreign states and sneaker companies use to spread disinformation and sell shoes based on an incredible amount of user information, respectively.

“Free Press believes a sound approach to addressing this dangerous system is an old one: taxes. In this case, a tax would be levied against targeted advertising to fund the kind of diverse, local, independent and noncommercial journalism that’s gone missing, and to support new news-distribution models, especially those that don’t rely on data harvesting for revenue,” write Timothy Karr and Craig Aaron, Free Press’s senior director of strategy and communications and the organization’s president/CEO.

In 2019, digital advertising businesses are officially overtaking traditional ad sales in TV, radio, and newspapers, a report from eMarketer predicted last week. Google, Facebook, and that scrappy underdog Amazon are set to take giant chunks of the $129 billion forecast for digital advertising budgets.

But the tech companies reaping ad dollars frequently skate by without paying much tax on those revenues. Between 2007 and 2015, as the companies were settling into their dominance, their corporate income tax contributions were not: Facebook only paid at a 4 percent rate, Amazon 13 percent, and Google 16 percent, Free Press writes. (And Amazon avoided paying any federal taxes last year.)

We don’t need to remind you about the financials of the journalism industry, which thrived across the 20th century primarily off of advertising revenue. Companies have tried to transfer that model to digital and sought scale via platform traffic, contributing to the clickbait that Facebook’s algorithm helped push. Free Press likens the pitch to the carbon tax in Canada and elsewhere. (An American version in Washington state faced resistance last year, as it has consistently at the federal level.)

Think of it like a carbon tax, which many countries impose on the oil industry to help clean up pollution. The United States should impose a similar mechanism on targeted advertising to counteract how the platforms amplify content that’s polluting our civic discourse.

Levying taxes on products like gasoline, cigarettes or lottery tickets, whose consumption may harm parties other than the user, isn’t new to U.S. policy. The resulting revenue has helped fund public health, infrastructure, education and welfare initiatives.

Unlike excise taxes on products, the tax on targeted advertising would be levied not against individual consumers but against enterprises that profit from targeted-ad sales. The revenues could be used to create a Public Interest Media Endowment, which would support production and distribution of content by diverse speakers — with an emphasis on local journalism, investigative reporting, media literacy, noncommercial social networks, civic-technology projects, and news and information for underserved communities.

Here are three ways the tax could work and how much money it could bring in:

Option 1: A 2 percent targeted-ad tax on all online enterprises that earn more than $200 million in annual digital-ad revenues would yield more than $1.8 billion for the endowment, based on 2018 ad sales. (See Table 2.) Commercial online publishers and platforms making $200 million or less in digital ad revenues would not be subject to the tax to avoid harming smaller to mid-sized online enterprises, especially those engaged in news production.

Option 2: A lower tax rate levied on all advertising revenues, including offline placements, which increasingly draw on similar data profiles gleaned from online activity. With projected U.S. advertising revenues for 2018 (both offline and on) at approximately $200 billion, a 1 percent tax rate would yield approximately $2 billion for the endowment.

Option 3: A tax equal to 1.5 percent of taxable income levied on any platform with an annual taxable income of $1 million or greater if more than 60 percent of such income is derived from the sale of advertisements presented to patrons or users. Based on 2018 revenues, this would yield close to $2 billion.

Columbia Journalism’s Emily Bell has called before for a “significant transfer of wealth” from Silicon Valley to independent journalism, suggesting “if, instead of scrapping over news initiatives, the four or five leading technology companies could donate $1 billion in endowment each for a new type of engine for independent journalism, it would be more significant a contribution than a thousand scattered initiatives put together.” This Free Press plan is an outline for a way the government could, in effect, mandate this.

The full paper, with more technical detail, is here.

Photo of a digital billboard advertising advertising by Mack Male used under a Creative Commons license.

POSTED     Feb. 27, 2019, 11:50 a.m.
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