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In the middle of the 20th century, more than 40% of adult Americans smoked. Today that figure is closer to 10%. Many factors led to this decline, but one of them was increases in the taxes on packs of cigarettes.
Like smoking, social media can be addictive and harmful to individuals and society, MIT Sloan professor and MIT institute professor argue in a recent article in “Network Law Review.”
Because companies such as Google, Facebook, and X (formerly Twitter) rely on revenue from digital advertising, they are driven by an escalating pursuit of clicks. This pressure, in turn, often leads to the promotion of emotionally charged, divisive, and sometimes harmful content.
“It’s no wonder that social media has been a conduit for both mental health problems and misinformation,” Acemoglu and Johnson write.
Given that banning social media isn’t a viable option, they suggest a solution that hearkens back to the public health fight against smoking: taxes on digital advertising, which could “encourage alternative business models, such as those based on subscription, instead of the currently prevailing model that largely relies on individualized, targeted digital advertising,” they write.
The perils of digital advertising
Johnson and Acemoglu articulate several ways in which an economy based on digital advertising creates harm. First, a business model that “incentivizes grabbing and keeping people’s attention at all costs” is fueling a mental health crisis, particularly among children, which was highlighted in a recent Senate hearing.
Business models that facilitate and encourage emotionally charged material can also lead to political radicalization, extremism, and violence. The researchers note that human rights advocates point to Facebook as the chief medium for organizing what the U.S. eventually came to call a genocide against the minority Muslim Rohingya population in Myanmar. Similar concerns have been raised in Sri Lanka and India.
Emerging AI technologies will likely exacerbate these concerns by increasing the targeting power of advertisers and enabling new ways of creating outrage and engagement.
Johnson and Acemoglu also note that a new trajectory for how technology is shaped and used is unlikely to emerge as long as a few technology firms dominate the market. Those firms prioritize automation, surveillance, addiction, and collecting and monetizing data. These priorities don’t encourage the development of technology that helps people instead of fueling anger.
Taxing toward a better world
Despite these concerns, there is “no policy response on the horizon,” the researchers write. “Hoping that Meta and other platforms will become more responsible in the future is nothing more than wishful thinking.”
Instead, media firms of all kinds — news outlets alongside social media and search engines — need to “move away from a reliance on digital advertising,” which would free them to promote more meaningful content. Taxation is the most efficient and straightforward method for motivating this change, according to Johnson and Acemoglu.
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They propose a flat tax of 50% for companies when annual digital ad revenue rises above $500 million. For context, the global digital advertising universe is likely to generate about $600 billion in revenue in 2024. Roughly 42% of it is expected to go to Alphabet, 23% to Meta, and 9% to Amazon. For Meta, digital ads account for over 95% of worldwide revenue; for Alphabet, this share is around 77%.
The threshold of $500 million is designed to prevent unintended negative effects on new entrants into the digital economy, the researchers write. The focus on digital ad revenue, not income, acknowledges that it is “too easy” for companies to hide profits in offshore jurisdictions.
In the end, “the point of such taxes is not to raise revenues or have a small influence on the volume of advertisement, but to fundamentally alter the business model of online platforms” — away from advertising and toward subscriptions gained through the sustained quality of content and trust with viewers, the researchers write.
This tax would apply to revenue generated in the U.S., but the researchers note that ideally, the other G7 industrial economies (Britain, Canada, France, Germany, Italy, and Japan) and other democracies would adopt similar measures.
In situations where functional monopolies seem to be quashing competition, economists and regulators tend to favor more competition over taxation, Acemoglu and Johnson write. But they argue that breaking Meta, for example, into its constituent parts — Facebook, WhatsApp, and Instagram — would do nothing to shift the incentives underpinning how each of those companies operates.
“The market will not move in this direction of its own accord. And no amount of jawboning will have the slightest impact,” they write. “It is time to impose a serious tax on digital advertising.”
Read the article: "The Urgent Need to Tax Digital Advertising"
