Shut your eyes for a moment and imagine the following world:
We have allowed powerful companies to enter our homes and lives to extract personal assets worth billions of dollars without paying us one cent for taking them. These assets are so valuable that the powerful corporations can use them in commerce in a way that drives countless small businesses and independent retailers into bankruptcy, leaving main streets everywhere in a state of decay and desertion.
Now imagine that those personal assets are converted into billions of dollars of cash, but the companies move that cash out of our country and warehouse it in countries that have the lowest corporate tax rates.
Imagine a world where our neighborhoods become less vital, because the federal, state and local taxes that pay for roads, police and clean water dry up.
Open your eyes, and you are staring right at that world. Companies like Google, Facebook and Amazon are taking our valuable personal data without paying us a penny. They hoard it, filter it and sort it with their secret algorithms, then exploit it, spinning what they’ve taken into billions in revenue.
You might say: “Google isn’t really stealing our data, because we’re getting valuable services and products in exchange. Who doesn’t love free music? Who doesn’t love a free e-mail service like Gmail?
But scratch just below that shiny surface, and it’s easy to see that it’s not “free” at all. It’s a good-old-fashioned barter: We are exchanging something of value for something else of value.
Google gives us free e-mail or mapping services in exchange for a trove of our personal data — where we shop, how much we travel, whether we take medicine or buy concert tickets — which it then turns into targeted marketing information worth, in the aggregate, billions of dollars to retailers and advertisers.
Here’s the catch: Barters are taxable, especially when they are done systematically and for commercial gain. The problem is, our government hasn’t yet treated these transactions as barter. Google is billions richer from it, while our towns and cities and our most economically vulnerable people are billions poorer.
I’m not making this up. The law is clear: A barter is taxable, as our tax laws have held for many decades. Section 61 of our Internal Revenue Code states that “all income” is taxable, even if it’s not in the form of cash. The U.S. Supreme Court has said many times that the definition of “income” is to be construed very broadly to include things other than money, specifically including “barter.”
Google isn’t just engaged in barters, its entire commercial business model is based on them.
This is what the tax laws call a “barter exchange company.” There are specific tax laws covering them. The tax code defines it as a company “with members or clients that contract either with each other or with such [company] to trade or barter property or services.”
And in case you don’t believe that Google contracts with each of us, check out the formal, binding legal contract called its “Terms of Service” — a thick, aggressive legal document drafted by the best lawyers in Silicon Valley.
Consequences of inaction
If we allow serious bartering schemes to go untaxed, it drives a good deal of our economy into a tax-free counterculture. The result? The real costs of our government infrastructure — our roads, schools, fire stations, police and courts — would be disproportionately forced onto the “regular” businesses that still deal in cash, unfairly increasing their tax burden.
Barters also have consequences for state and local sales taxes. If I buy an old-fashioned CD or LP from a Main Street store in Minnesota, I pay sales tax. That helps pay for Minnesota’s infrastructure and social programs. But when I listen to the exact same music on a YouTube video, “free of charge,” again and again and again, Google doesn’t collect any sales tax.
Some states have already started to recognize that “cloud services” (e.g. streaming) need to bear sales tax when they replace products we used to buy in stores or in arm’s-length cash transactions.
Other countries understand this phenomenon, too. Several reports commissioned by the European Union have analyzed the tax issues created by the digital economy. One key report back in 2015, referred to as “BEPS” by the Organisation for Economic Co-operation and Development, actually uses the word “barter” several times and estimated, conservatively, that the tax revenue loss to governments is one-quarter of a trillion dollars. Importantly, it also says these tax losses hit “developing countries” much harder than “developed countries.”
In responses to the BEPS report, several big data companies and trade groups, including Spotify, argue that, “data has no value in its own right.” That’s outrageous. It’s like saying gold has no value until it is made into a ring, or crude oil has no value until it is coming out of an Exxon gas pump.
Not only does the data itself have great value, but so does the internet’s two-way superhighway that big data companies use to siphon all of that data. A key part of the barter is not just the value of the data, but also the value of the IT infrastructure used to transmit the data back to companies like Google.
Considering these companies would be nothing without the data they reap from us, shouldn’t they actually be paying their fair share of our cable and wireless bills? They are not. We pay all of it, a cost that disproportionally burdens the poor. What could be a sweeter deal for Google than: (1) paying nothing for our data, and (2) paying not a penny for the “pipes” that deliver the data to their own doorstep?
Well, what could be sweeter is: (3) having that barter transaction also be tax-free — a true trifecta.
Since it’s indisputable that barters are indeed taxable, how could we fairly tax this barter industry? The electric company knows how many kilowatts we use, and the water company knows how many gallons we use. But the data lords and their secret business model have made it impossible for anyone (but them) to measure how much data they’ve taken and how they’ve used it.
If one of us broke our water meter, then told the water company, “Gee, the meter is broken, so I don’t know how much I used, so I don’t owe you anything,” that excuse wouldn’t fly, and it shouldn’t fly with the world’s most powerful company whose corporate mission is to be able to organize all of the world’s information.
Google might say, “It would be impossible for us to measure how we actually used Jane Doe’s data, it’s such a complex ecosystem.” But don’t buy that for a minute. This is the company that brags about its artificial intelligence and “machine learning” capabilities already surpassing humans in games like chess and the ancient Chinese game of Go. Google and their cohorts like Acxiom, LiveRamp and similar data brokers are controlling our actions, decisions, behavior, and access to loans and more. Certainly when they sell data to one another, they know exactly what they are selling.
Google might also say, “When we sell advertising based on users’ data — and we sell billions of dollars’ worth — we pay tax on those sales, so our business is being taxed.” But that is a totally different line of business for these companies. It’s like Tiffany & Co. saying “we are taxed on the sale of our gold jewelry on Fifth Avenue, so there shouldn’t be any taxes when we acquire gold or mine diamonds.” The world doesn’t work that way: When a company exploits valuable data in certain communities, those communities deserve the tax benefits from those transactions.
It’s small wonder that Main Street’s businesses are being boarded up, while Google’s massive server farms and Amazon’s massive “fulfillment” warehouses keep growing.
Progress for all
I’m not arguing against progress. Technology and our economy change constantly. I’m just arguing for a level playing field, so that companies like Google compete on an even footing with the “old” economy that’s based on face-to-face transactions, that supports local taxes, jobs and community vitality.
Google could try to scare people by arguing that treating its business like a barter will only put more taxes on each of us. But we are not the “barter exchange company.” Google is. And the tax laws could easily exempt barters less than some minimum threshold amount. But frankly, even if the average American were taxed on the value of the services from companies like Google (let’s say $1,000 a year value), isn’t that only fair? Wouldn’t we look more critically at what we’re getting? It might make us choose the retailer down the street instead of going online. It might make us better consumers instead of just letting Google walk all over us.
My suggestion is by no means radical or revolutionary. Internet innovators like Jaron Lanier have suggested a much more radical way of getting at the same issue. In a three-part series published in the New York Times, Lanier suggests that every individual should be paid outright for data taken from them, and that would of course be taxable income. Even Democratic presidential candidate Andrew Yang boldly declared in the Oct. 15, 2019, debate that “our data is ours … . I would make data a property right that each of us shares.”
What I am proposing here is, in fact, much less complex than many of the current taxes our country enforces. Taxes are basically a form of social engineering. We tax cigarettes to stop people from smoking. We give tax credits for solar panels to encourage environmental causes. Taxes drive social policy.
For whatever reason, our lawmakers have, to date, decided not to enforce taxation on the barter schemes of these big companies, despite the fact that this policy decision is damaging countless professions and businesses.
Musicians like me were among the first casualties of big data. But as “digitalization” and displacement of jobs by data-driven AI accelerates, all of us, even our presidential candidates, are beginning to acknowledge it’s time to level the playing field.
The free ride from the IRS and all of us has gone on too long. It’s high time to restore a fairer marketplace for businesses that struggle to compete with these behemoth data/barter companies. It’s time to require big data companies to return their fair share of taxes to our communities, to restore a equitable marketplace, to respect the true value every citizen’s personal data, and to shine a light on how widely Google, Facebook and others trade and exploit our data.
Maria Schneider, a Minnesota native, is a five-time Grammy-winning composer and jazz orchestra leader. She has testified before Congress and has written extensively on the impact of big data companies on the music creator economy.