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.


Kinglink

25 percent seems high but if there's two things I know, it's the following.

A. Sin taxes (on alcohol, cigarettes or other things) only changes the price, people still will buy the objects they desire. They might buy less (for obvious reasons, they have 20 bucks, and the object was 5 dollars, and now costs 10 dollars they can't buy 4 items any more).

B. People don't pay for porn. Some people may, but too many people get their erotic entertainment online, which is loosely regulated (and I'm sure many offices will move over seas just to avoid these taxes even while the videos remain filmed in America). There also is a large amount of piracy in pornography, which may grow from an increase in price.

That all being said I don't think a tax would necessarily harm the pornography business, but it would change the profit margins slightly. Not like the business has ever been that unhealthy.

Ron Jermemy's Mother

I would love if it this tax went through, and then there was a campaign to convince viewers to buy "100% authentic California porn", just like Florida oranges or California raisins....

sw

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.

discordian

LA may be the pron movie capital, but with all the internet pron isn't the rest of the industry pretty much anywhere that state laws allow it?
Has internet pron eclipsed the old style movie type yet?

Sri

I recall learning that taxes on inelastic commodities are passed on fully to the customer... Also, does it matter where the porn industry is situated if the demand is the same?

Then again, this applies only to a sales tax... a production tax might well cripple this... so I suggest this... tax the sales, subsidize the production :)

frankenduf

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

Diversity

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.

Read more...

Ron Jeremy

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.

Clint

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.

Pete T.

MRB - Frankly, I don't like how mainstream religion has become. In fact I'm quite offended by it. I think we should tax religion and solve the entire economic crisis that we are in now.

Slippery slope there buddy..

Will

jz,

Our ancestors often engaged in polygamy and incest. Those low-tech African tribesmen (and many other cultures around the globe) regularly visit prostitutes. Many tribal cultures regularly raided other tribes to take women as (sex) slaves. Millions of women around the world are sex slaves.

A little porn isn't too bad compared to all that.

Avenue Q

The Internet is really, really great ... For porn!
I've got a fast connection so I don't have to wait ... For porn!
What? There's always some new site ... For porn!
I browse all day and night ... For porn!
It's like I'm surfing at the speed of light ... For porn!

Chris

@Rob Stevens

Talent?

Mike

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?

Snot Rag Dave

My guess is: Assembly Member Charles Calderon (originator of the bill) has no hope of seeing such a tax enacted... but just wants to look tough on porn. He's been in the State Assembly for over 25 years... maybe he wants to use this as a toehold to move up in politics...???

larry

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/

Mr. Bill

All taxes should be income based. Anything else is regressive and/or anti-business and economically unsound.

GS

MM's question needs to be asked again:

People still pay for porn?!?!?!?!?!

derek

Although small studios may be able to locate outside of CA, the larger ones won't want to take the legal risks. In most jurisdictions porn producers can be charged with pandering and prostitution. CA is the only state with established caselaw that protects producers from prosecution based on 1st amendment arguments, People v. Freeman.

Miss Middle of Manchester

I have to confess, I don't know how much variety people want in their porn or how much it costs, but as an internet connection is only ?10/$20 per month, and I'm guessing 1 porn DVD+ 1 porn magazine a month comes to more than that I can't see why anyone wouldn't just get the internet - more variety at a lower price (which is surely the point of any good from the consumer's point of view?)

I agree that the best taxes are ones which do not change behaviour. I find it odd, however, how attached politicians are to 'sin taxes' of whatever form.