TOC The Privacy Tax
Open letter to Barak Obama and Herman Van Rompuy
Your Turn

November 13, 2012

Dear Mr President, dear Mr President,

Your titles are identical, your responsibilities are heavy, your schedule is full. Yet the similarities hardly stop at this superficial level. Having both been granted a second term as head of two of the biggest economic powers on earth, you have perhaps come to appreciate how powerless you both are. The exact circumstances are obviously quite different, the bottom line is yet identical. You two are not men of independent means.

The United States budget originates in the House of Representatives, which happens to be in the hands of the opposition. The European Union budget is a pièce montée prepared by many cooks claiming from clashing culinary traditions. You two must deploy a great deal of persuation to marshal the resources you deem necessary for your respective unions. Never easy in times of prosperity, let alone when austerity bites.

Why not therefore listen to a suggestion unburdened by either economic or political expertise? Start by studying robbers, whether they skim cash registers, like Vito Corleone, or plunder the banks, like Willie Sutton. Money is best taken where it is but, despite Willie Sutton's lesson, the more sustainable choice is Vito Corleone's, in words your advisors will recognize, to tap dynamic flows rather than deplete static stocks.

You reply that this is precisely the issue with today's crisis. It has shrunk the very flows which feed your finances. Fair enough but robbers should not be your sole role models. What about innovators? What if you were in a position to tap a brand new flow?

You point out governments are unlike businesses. Besides, you are no Steve Jobs, not even Bill Gates. Modesty honors you but you are mistaken. Success sprang from consummate skills in negotiation at Microsoft, communication at Apple. If these arts are not the mainstay of politics, what is?

You challenge me now to find a new flow but this has to be a rhetorical question. I am talking of private data, naturally. Shouldn't you consider taxing its use as advocates for the environment call for a carbon tax? Read Dieter Helm (*). "What is missing across Europe, the United States and China is a global agreement on a proper carbon price. [...] A tax on carbon consumption is what's needed to slow the warming of the planet".

You concede it's a clever idea but berate me for my naivety. Now that New York has become New Venice and its banks face recurrent liquidity crises they never foresaw, perhaps at long last prudence will price carbon for all it is worth. But where are the eprivacy catastophes?

It is my turn to concede you know better than me how fraught with delays it can be to enact any bold policy. But consider the real difficulty of agreeing to a carbon tax is that industry has outsourced pollution to China. As it happens, privacy is immune to such a dodge.

How can one outsource 815 million consumers without their consent? The same cannot be said of their private data, sent or smuggled as need be. But please appreciate the difference between enforcing privacy laws and taxing private data usage. Companies become liable as soon as they target consumers residing in your unions. Tax all advertising and allow advertisers to claim the tax back by proving they did not use any consumer data.

You are bitten. Tapping a $500 billion annual flow worldwide is bound to deliver a bounty. Even a few billions would go a long way to help "Mr Cameron [...] preserve Britain's budget rebate", to quote Stephen Castle (**), and add sugar to "the 2010 Bowles-Simpson bipartisan plan for tax rises and spending cuts", to quote Gillian Tett (***). You yearn to avail your union of a privacy tax but you can think of several practical obstacles.

First of all wouldn't advertisers howl as loud as bankers threatened by financial transaction taxes (FFT's)? This fear is overblown. No matter how light the rates, an FFT scheme kills all deals whose flimsy margins they exceed. A useless froth, but a main source of revenue for many financial companies today. On the contrary, well targeted advertising boosts margins and no capitalist will forgo a taxed transaction as long as it is profitable.

Again wouldn't all privacy advocates raise a ruckus? The more a government rely on sin taxes, the more reluctant it becomes to eliminate the sin as this would cut its revenue. Privacy violation practices will be for ever entrenched by a privacy tax. Not in the least if you make the latter progressive according to the number of personal profiles accessed by the taxpayer. With the right rates, you can both favor privacy and set a revenue floor.

For a tax event would occur for each use of personal data. If this relied, as in current implementations, on data access by one or more data aggregators, the rate would be high. It would be low but not zero if data usage involved no access other than by the privacy enabled consumer. Big Data may deny the latter case is possible. Yet advertising can be targeted in eprivacy, as I will be glad to prove to your technology advisers.

Still many will warn that diverting money from advertisers to union coffers is a zero sum game which cannot grow the global economy. Invoking Maynard Keynes is intellectually tempting but likely to bog you down. Instead you must boldly affirm a privacy tax boosts growth on its own merit.

You are pained. As soon you thought a privacy tax was a feasible suggestion, I seem to undermine its credibility with this extravagant claim.

Do not underestimate the strength of capitalism. Advertisers will take all imaginable measures to minimize their tax burden. It will not be enough to outsource access to consumer data. For if a Google or a Facebook are taxed on behalf of their clients, they will make sure to recoup the tax through higher prices. Advertisers will insist their ad networks also respect user privacy and thus insure the tax rate reaches its floor.

In order to reap this decrease in taxation, advertisers will have of course to convince consumers to use their own personal data. Expect the corresponding tax rebate to be split between all the partners involved, i.e. the consumers, the advertisers and their intermediaries. In these circumstances, can consumers object to paying a tax they had unwittingly paid all along in exchange for a new, visible source of net revenue?

Who can deny a marketing revolution is overdue and personal targeting the way of the future? Yet thinking this will happen efficiently against the free consent of consumers is delusional. By turning consumers into active agents, a privacy tax will unleash this future. It will increase marketing productivity, free large amounts of money for other profitable investments and thus truly enlarge the economy.

Let the latest US elections be your guide. "According to the Center for Responsive Politics [...] about $2.5bn has been spent on campaigns for the presidential election. However, when the congressional battles are included, the tally rises to almost $6bn" (****). Since presidential elections were seriously fought over eight states only, the size of the US was not a major factor. Can Gillian Tett be wrong to imply most of the money went to outnoise the opponent? A privacy tax would filter out that noise preventively while letting election messages be well targeted at will.

In our Information Age, data is king. Let its ever increasing flows serve the people. Please, consider making a privacy tax part of your prime legacy.

Respectfully yours.

Philippe Coueignoux, resident of the United States, citizen of the European Union

  • (*) ....... To Slow Warming, Tax Carbon, by Dieter Helm (New York Times) - November 12, 2012
  • (**) ..... Amid a European Union Budget Battle, Politics Put Merkel and Cameron at Odds, by Stephen Castle (New York Times) - November 8, 2012
  • (***) ... Be prepared for a lengthy era of US political cliff-dancing, by Gillian Tett (Financial Times) - November 9, 2012
  • (****) . Absence of transparency sparks unease with $6bn poll, by Gillian Tett (Financial Times) - November 6, 2012
November 2012
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