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Taxing The Games Industry Will Not Raise More Revenue

IRSWith all this fiscal cliff, 99% vs 1% and other such economic controversies going on, there is a lot of talk about how to bring in new revenue and make cuts in order to close the deficit and bring fiscal sanity back to the US. Within all this, there are plenty of crazy suggestions from all kinds of people. However, there is one person and that person’s suggestion that seems a lot crazier than others. In a recent op-ed to the Daily Oklahoman, one person feels that a good source of revenue for the nation would be increased taxes on the entertainment industry, including the games industry.

It dawned on me that we’re missing out on enormous revenue opportunities by not imposing massive tax hikes on certain industries currently overlooked. When I think of industries that are heavily taxed for the benefit of society, I think of tobacco and oil. Areas I believe we can extract more tax dollars from for the benefit of society are the movie, video game and music industries. These are industries that take enormous amounts of the people’s money from the economy and put it in the hands of a few.

There are a number of problems with this line of reasoning and I will get to the more pressing ones in a moment. However, I would like to address first that last sentence. This writer feels that these industries take money from other people. That implies either theft or fraud. However, that is far from the truth. These industries earn that money through their hard work in creating a product and selling that product to consumers. The idea that we in the games industry are defrauding the public to enrich a few fat cats is absurd on all levels.

Speaking of hard work, this person also feels that creating films, video games and music is easy.

These people do minimal work. Talking, singing, perhaps playing an instrument, yet they’re allowed to take in massive amounts of cash and put it in their own pockets. This isn’t fair.

It isn’t fair that someone has found a way to earn a living and build a business using their talents and skills? Is it not fair when a car mechanic builds a successful business around his knack for fixing cars? Is it not fair when a chef creates a thriving restaurant based on her ability to create culinary delights? What about fashion design, accounting or any other trade that requires an expertise in a specific field. Under this person’s logic, no¬† one deserves their payday.

But let’s humor this person for a minute. What if we do raise taxes from the already high 40% rate to the suggested 60% rate. How much revenue would we be talking about? For that, we will consult Techdirt’s Sky Is Rising report on the entertainment industry.

According to this report the industries this op-ed writer proposes raising taxes on brought in the following revenue for the year 2010. For fairness sake, I will include the publishing industry although this person did not include it for some reason.

  • Film Industry – $10.6 billion
  • Publishing Industry – $33 billion
  • Music Industry – $168 billion
  • Games Industry – $33 billion

Keep in mind, this is revenue and not profit. So while that is how much money these industries earned in 2010, it is not how much they pocketed. However, even if we consider taxing these industries based on gross revenue, what will we get? At the current 40% rate we will have raised $97.8 billion in tax revenue. Under the proposed 60% rate that revenue will be $146.76 billion Considering we have a budget shortfall of $1.1 trillion that will hardly make a dent. This is also taking the tax revenue out of gross revenue. If we take it from just profit, that number will be far smaller. So how in the world could raising taxes on the entertainment industry help the economy?

Additionally, this plan relies on the assumption that all things will remain unchanged aside from the tax rate. This does not give any thought to companies that will leave the country to avoid the high taxes, or companies that will close down or any other such response. This person even insists that such taxes will have no negative effects on the consumer.

If you believe that fleecing these industries with tax liability will cost the price of a movie ticket to go up or cause you to pay more for a CD, don’t worry. When you extract more tax from the top, it doesn’t affect those below; it makes everything fair.

This statement is so laughable, I can hardly breathe. What this higher tax rate will do is decrease profits for a company. When a company faces decreased profits, it responds in one of two ways. It could respond by cutting costs in the form of layoffs or it could respond by raising prices of the end product. Either way, the economy suffers. In the first scenario, it suffers because fewer people are employed and will have less money to spend. In the second scenario, it will result in fewer purchases of the higher cost goods thus decreasing profits more and thus decreasing tax revenue.

We cannot fix the economy or the national budget on the backs of a single sector. Doing so will never raise enough money and will in fact result in less tax revenue. One would hope that nobody takes this person serious and that someone out there will help them see the fallacy of their opinion.

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