Would a Porn Tax Hurt Sales?

A California state assemblyman has proposed dealing with the state’s huge budget shortfall by taxing pornography, including the production and sale of pornographic videos — by 25 percent.

To an economist this initially sounds like a good idea: An ideal tax is one that doesn’t cause any change in behavior — doesn’t generate any excess burden on the economy. I believe the demand for pornography is quite inelastic, so I don’t expect sales to be reduced much if porn prices rise as producers try and succeed in passing this tax along to consumers.

But demand is only one side of the market: A tax only in California gives producers an incentive to move their operations elsewhere. I don’t know how attached porn video producers are to LA, a leader in this and all other aspects of the movie industry; but I wouldn’t think the fixed costs of production are very high, and I bet that workers in this industry are fairly mobile too.

That being the case, this tax might generate a substantial dead-weight loss, as a lot of production shifts to other states that don’t impose the tax. The tax might raise revenue — that depends how many producers go elsewhere; but it will certainly reduce output in this major California industry.

Leave A Comment

Comments are moderated and generally will be posted if they are on-topic and not abusive.

 

COMMENTS: 50

View All Comments »
  1. DJH says:

    Someday politicians are going to get over their compulsion to tax everything under the sun. And on that day, I suspect hell will freeze over.

    Hasn’t the maxim of Chief Justice John Marshall (“The power to tax is the power to destroy”) been shown valid, time and again?

    Having said all that, I have to wonder if this isn’t some kind of ploy. IOW the assemblyman in question isn’t really trying to tax pornography; rather, he’s requesting a tax that sounds just ridiculous enough that it can be dismissed later, in favor of another tax or an increase in some tax that’s already in place, as a way to make it more palatable, or appear that California’s government has left no stone unturned in its effort to deal with the financial crisis.

    If that sounds a little subtle, guess again. It happened recently here in CT, where a tax on delivery services (e.g. UPS, FedEx, and delivery of things like pizzas) was proposed, only to be dropped … which meant that aid to municipalities was not increased for this year. This leaves municipalities free to increase their own taxes on residents, and they can say, “Well, since the state didn’t enact the delivery tax, we now have no alternative but to raise your property taxes!”

    P.S. This leaves out the REAL alternative, which is to stop taxing everything into oblivion and spending like there’s no tomorrow … but no one said politicians ever did the logical, rational, or efficient thing.

    Thumb up 0 Thumb down 0
  2. Mike says:

    I don’t doubt that you’re right. I’m sure the porn industry would be able to pick up and move to Phoenix. I know someone who produced a porn video and it looked pretty easy to do on the fly.

    Run an add for talent. Interview talent. Rent a swanky room. Bring a camera and shoot some footage.

    How much of the production needs to be in CA before it’s taxed? Also, is this constitutional?

    Thumb up 0 Thumb down 0
  3. larry says:

    I have the sense that you are correct about the mobility of the industry. I suspect it wouldn’t be terribly expensive for the industry to pull up stakes and move to Florida. A 25% tax would provide a big incentive to move.

    Hmmm, maybe this is a golden opportunity for the Sunshine state to bring new industry. They could devise all sorts of tax incentives for this industry, as many states have done for the mainstream film industry.

    Go ahead California: kill the goose that laid the golden egg/

    Thumb up 0 Thumb down 0
  4. Clint says:

    I would like to submit that porn sales are becoming increasingly irrelevant. Between xtube.com and youporn.com (among countless others), porn is now being produced by amateurs for free. The smartest thing someone could do is open a site with heavyduty servers and look for advertisers. This law would only encourage people to seek these sites out rather than pay an exorbitant 25% tax.

    Thumb up 0 Thumb down 0
  5. Ron Jeremy says:

    I agree with your point about low fixed costs in producing porn. Another reason why this type of tax is ineffective is that there is a substantial market for free porn; a ready substitute for non-free porn. This substitute, I would guess, makes the demand for the type of porn proposed in the tax quite elastic and not a good source of revenue.

    Thumb up 0 Thumb down 0
  6. frankenduf says:

    I am utterly for this tax- wait a minute, Pennsylvania has no such tax, right?

    Thumb up 0 Thumb down 0
  7. Diversity says:

    Tax and subsidy for movie prduction shift production all round the world, though producers go back to Southern California when the tax or subsidy break ends. If the objective is to move porn production out of California, a permanent 25% tax on production should be ample for the job.

    But taxes on sales do nothing to change the location of production. If the California legislator’s prime objective is to raise revenue, just tax sales in California.

    If he or she wants to shift California tax burden to non-California residents, the best bet may be a sales tax on all shipments and ownloads from California sites combined with regulation and advertising to establish a brand – “Only Porn 100% made in California can be sold as 100% California Hollywood Porn”.

    If she or he wants to discourage the consumption of porn in California, the best option is to go on putting up the sales tax rate until revenue ceases to grow.

    Thumb up 0 Thumb down 0
  8. sw says:

    Usually part of the goal of these “sin taxes” is to offset a negative externality associated with the consumption of the good being taxed — think alcohol and drunk driving or smoking and hospital bills. But in this case, the evidence shows that porn has positive externalities such as reducing the incidence of rape. Hopefully this bill will be defeated as it will do more harm than good.

    Thumb up 0 Thumb down 0