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.


Donna Dare

I work in the Adult industry in the UK and this sounds a great idea :)

Jeff S.

As far as I'm concerned, they have this backwards. I see the accessibility of porn as a basic human right, and thus its production should be government subsidized.

Jeff

jz

disclosure: I'm a woman.

How did our caveman ancestors procreate without porn?
Did the survival of our species hang in peril until the arrival of the video camera? Has man (the species) become technology-dependent for arousal? How do the low-tech African tribe men get aroused without porn?

dave

Chesapean -

I am new to the formal analysis of economics, so please forgive me if I am missing some subtle aspect of the theory of rationality as applied to economics.

How can we regulate the overall "rationality" of participation in a regulated industry? If it is illegal to participate in the production of porn in 99.9999% of the country then wouldn't that illegality weigh heavily on the individual choice of people that might otherwise find participation more agreeable than, say, working two minimum wage jobs? As a way of illustrating my point, assume that teaching economics was illegal everywhere but Detroit. Could we judge the whole business of teaching economics as "irrational" if there were only a few (say, several hundred) economics teachers in business and they all lived within the city limits of Detroit?

It seems to me that the larger, non-individual, imposed factors (the social stigma and the law) are macro elements that effect the choices of the individuals. And isn't rationality an individual choice, not a macro measurement? In other words, isn't a "rational" act basically the summing up of the pros and cons of an act with whatever limited information we have available and coming to some personal conclusion? (Here is where I am probing for a deeper understanding of "rationality" in economics. Do I have this wrong? Is there some macro version of "rationality" that I have missed in my, admittedly, thin reading of the main stream economic theory?)

Furthermore, I suspect that there are a great number of people, especially younger people, who would find this to be quite a rational career choice if there weren't a social stigma and laws against it. I think you only have to look as far as the exhibitionist culture of the teen to twenty-something generation to see that the tide is changing. Think "Girls Gone Wild" and the annual Spring Break craziness that takes place every year.

By the way, I have to say that I am ecstatic to have found a blog where interesting ideas are being discussed thoughtfully and politely in a largely anonymous forum. This is truly a rarity on the net today.

dave

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Oatmeal Stout

I work in the industry, in socal, and this tax would either:

1. Put us out of business
2. Force us to move

Which do you think we'd chose? A lot of porn isn't made in socal, we can't just jack up our rates to compensate you know. Our overseas competitors, who already have a financial leg up, would definitely kill us!

Jack Mehoff

I'd gladly pay 3 or 4 times more than I do now for some good hardcore porn. I say go ahead and enact the tax. But if you do, you should also enforce a mandatory 'money shot' minimum for the now more expensive porn I have to buy. I'll pay more...but I better get more too. Supply and demand, man. I'll supply tax money...demand poon.

Jeff from LA

I personally think it would be a benefit to CA to move this sleazy industry to some other state. Let Arizona or some other state take our place.

Peter Payne

What is porn? I have an online business (jlist.com) selling various things from Japan. Some of the items we sell are for adults, and we do have DVDs and adult manga which would be classified as this. How about anime figures with removable clothes? How about photobooks in which the girls are wearing very little, photographed in ways that make you use your imagination? How about nude photobooks that are very artistic in nature, or artbooks which have some nudity? I've got a DVD that shows the faces of women as they orgasm, and nothing else -- all you're allowed to see if their faces, which makes it much more interesting since you have to use your imagination.

A bigger question is, how many times do we have to see that people (of both parties, but usually Republicans over the past 8 years) who bang their fists on the table and try to act moral are anything but? I would rather trust a guy with a folder of reasonable porn on his hard drive than most of these guys. I know America as a group is not that smart a nation, but clearly most people must know that you can't force any kind of morality like this.

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Tim Taxter

If this goes through the Porn Industry in the state of Florida will be doing back flips.

Go Gators

dave

There is something fundamentally wrong with this statement:
"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."

A 25% tax on a $1.5 billion industry (see http://www.msnbc.msn.com/id/17033892/site/newsweek/from/ET/print/1/displaymode/1098/) will "generate" $375 million in taxes for the state. Sounds good, right? But that $375 million comes from somewhere, it isn't just created by the tax. The money that would be spent on the tax for porn would not be spent elsewhere on other discretionary spending. That means that there are a bunch of businesses, many of them in CA, that would (between them) lose $375 million in revenue. The only advantage to California (the state, not the citizens) would be that some percentage of the lost discretionary spending by Californians on non-porn items would be offset by the taxes generated by out of state sales (probably only possible on the production) of CA produced porn.

Taxes aren't "free". Money sent to the state in the form of taxes involves no trades for goods and services between private parties - the engine of the economy. The money that goes directly to the state as taxes comes out of the pockets of the businesses and citizens. There is no way to create a tax that will "generate" $375 million without creating an "excess burden on the economy"

Or does that make me sound like a small-"L" libertarian?

(There are five major assumptions in this analysis: the demand for porn is price-inelastic; the porn industry isn't likely to move out of the state to avoid the tax; the tax would be passed on to the consumer in the form of increased prices, a safe assumption since they could do it and the demand wouldn't go down - see the first assumption; the available pool of money for discretionary spending will be spent somewhere on something; the tax doesn't magically increase the available pool for discretionary spending - a pretty safe bet. Of these five assumptions, the first two are debatable. The last three are, I think, pretty straight forward.)

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Xaq Fixx

I work for an online Video On Demand porn provider, and have been in the industry for several years. We do not produce our own content but work with the studios that do.Yes, porn is produced all over the world, and is fairly mobile, but less mobile than you might think. For example, LA is one of the only places it is legal to shoot porn, even some places where prostitution is legal, filming sex with intention to sell it is still outlawed. Much of the well known talent is based in LA, as are the offices and studios of the bigger producers, along with several talent agencies. Talent can travel for a shoot, but that increases cost of production, and limits the number of people or scenes filmed. From the talent's perspective, travel also limits the number of shoots you can do, as you can film a shoot, or scene a day in LA, but if you are flying from LA to Miami, to Vegas you will need more time, more jobs to make the same amount of money, etc. etc. If you are a director and one of the models flakes (happens quite a bit), or isn't working for a particular scene, you can't call up the agency and request someone else right away, you have to arrange for someone else to fly or drive out there delaying the shoot, and costing you money.

I think the industry is more likely to fight this tax than smokers do cigarette taxes and smoking bans, as this is their livelihood.

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Walter Mitty

Will the tax form come in a plain brown envelope?

Ed

Why does your argument not address that the real purpose of the tax could be,and probably is, to drive the industry from their borders? Many in California would argue that the elimination of the pornography industry would aid society more than any tax generated from it.

Chesapean

Dr. Hamermesh is making a good point about incentives that is, regrettably, marred by lack of information about the industry. As other commenters have noted, LA is the only place in the U.S. where it is legal to produce pornography. The proposed tax is thus a form of governmental "taking," because it targets a captive group: porn producers who cannot readily pull up stakes and go elsewhere.

For an economist interested in incentives, though, pornography offers many questions to explore. The biggest goes to the very heart of economics: Can it be "rational" to produce or to participate in the creation of pornography?

The answer is not as simple as it might seem. After all, if a career in pornography is as a rational a choice as, say, a career in economics, then you would expect pornography to be as universally legal and as prestigious as economics.

aiken

All sorts of problems here. First, the age old issue of defining pornography. Where is the line between an oversexed legit movie and porn? What about documentaries about porn?

This proposal will also likely be opposed by the religious right, who prefer the word "obscenity." Wouldn't paying a porn tax be a strong defense against obscenity charges? It would be pretty hard for one branch of government to say an operation was pornographic and for another branch to say it was not (Supreme Court-protected) pornography and instead obscenity.

Plus, a lot of porn is already produced outside of California, and this will predictably hasten that exodus. To the extent that porn is good for the economy, it will be other states that benefit (presumably regions comfortable with sexuality, like Las Vegas).

Finally, how do you tax the "production" of the video? What, the wages? Cameras which are going to be used for that purpose? Total production budget? That's opening a huge can of worms.

Sounds like a classic "go after the vices, nobody will complain about that" strategy, which is fine enough, but in this case the proposal is both impractical and counter-productive.

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MM

People still pay for porn?

Steve

This will just drive this all onto the net and offshore. This sector has already figured this out and has driven the conventional suppliers to the wall.

What is needed is a tax on fundementalist and cult religious groups. Its much more difficult for these groups to offshore their activities. Fleecing the sheep is best done face to face and besides, their preachers and other hangers on, want their mansions in the good ol' U.S. of A., anyway. Stick it to 'em!

jonathan

The industry is shifting to the internet and this bill is not clear in its intents to tax internet viewing of porn. The bill can be read that way but it is not plain (probably on purpose). They want to tax any sale through the internet, which one would think would cover videotapes, but the definition of property includes "digital image, or digitally or computer-manipulated image," and that could be read as taxing viewing on a computer. This could create some really difficult legal issues because servers and companies can be moved anywhere even easier than video production. One way to minimize the impact of this kind of tax would be to incorporate in a different location and make sure videos are delivered from websites hosted outside the state. It would be unclear then what "sale" would be happening in California to be taxed. Merely producing videos for the internet is not a sales activity; the state is then a location for shooting but might not then be where the sales originate.

If you read the bill, 90+% of it is a standard sales tax bill with detail about the use of trucks and other materials used in production.

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dave

Chesapean -

Ok , I have done some more thinking and reading on this and it seems that individuals acting in a "rational" way (from their private perspective) is an _assumption_ of main stream economics, not a _measurable_effect_. What we are talking about here is altering the framework in which individuals make those rational assessments. There probably aren't more people involved in the production of porn because we raise the relative cost via the social stigma and limiting the opportunities for participation. People that would otherwise choose to participate despite the social stigma but don't live in Southern California have two choices: move there or break the law. These two factors no doubt change the framework in which otherwise willing contributors make their decision to stay out of the business.

The relatively low numbers of people taking part in the industry isn't a measure the "low rationality" of the endeavor. The low numbers are an indication of the relatively high cost of taking part.

Regulation always leads to scarcity somewhere. In this case it is a scarcity of labor.

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MRB

I agree with a tax on pornography. Frankly, I don't like how mainstream pornography has become. I think 25% is excessive as producers would simply move to Las Vegas, Florida, and Arizona, and ultimate take all sorts of other tax dollars with them. Porn is a Billions of dollars industry, and between the wages paid, income and property taxes paid, and profits brought into the state, they do contribute to the economic well being of all Californians. So there is a trade off.

There could be a positive outcome of separating the porn capital from the movie capital, in that the number of young women moving to LA to work in the "legitimate" film business would be less easily sucked into the pornographic side of things.