A tax on digital ad sales won’t solve all of Pa.’s budget problems. But it’ll help | Mike Connolly

February 14, 2021 6:30 am

In Pennsylvania, budget season has a lot in common with a children’s bedtime story. Both require a bit of imagination, a willing suspension of disbelief about the subject at hand. Both contain villains, whether they’re a fire-breathing dragon or a lobbyist trying to get a special provision tucked into the depths of a bill.

Mike Connolly (Capital-Star file)

And both have about an equal chance of coming to life as originally written.

This year’s budget proposal from Gov. Tom Wolf has two major tax overhauls to raise revenue: an increase in the Personal Income Tax for wealthy earners, and the severance tax on natural gas. Both ideas are worthy of serious consideration, though neither will be in our Republican-controlled Legislature.

Without that revenue, Pennsylvania will continue to face crippling deficits that can’t be papered over by Republican-forced borrowing. So here’s an idea that Republicans and Democrats alike should seriously consider: tax digital ad sales.

This week, Maryland’s legislature is set to override Gov. Larry Hogan’s veto of a bill that will make them the first state in the union to tax digital advertising.

The 10 percent tax would be levied on ads that Maryland residents see, not based on where a social media company is headquartered. Such a measure fights back against companies shifting their locations to avoid paying their fair share, or on claiming losses on paper that wipe out any tax liability.

If Harrisburg implemented a similar measure, it could raise nearly $500 million, and would likely grow each year with the continued growth of online advertising.

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Here’s how the math works: the online advertising market in just the United States comes out to about $124.6 billion. That’s just in 2019 alone, the last year full figures are available. A 10 percent tax on that figure would equal $12.46 billion. Multiplied by the percentage of the U.S. population that resides in Pennsylvania gives you roughly $500 million.

That money alone doesn’t add up to all the revenue we need to meet the difference between what our state government spends versus what it takes in. It doesn’t replace the revenue from asking the wealthy to pay a bit more or for fossil fuel extractors to pay a severance tax.

But a tax on digital ad sales accomplishes a few things we should like to see. It provides a new stream of recurring revenue to the badly ailing General Fund. It raises that revenue from sources other than the paychecks of Pennsylvanians. And it brings that money into the Commonwealth from some of the wealthiest and most tax-avoidant companies in the world.

By the numbers: 2021-22 Budget Breakdown

Companies such as Google and Facebook dominant the online advertising marketplace just as their monopolistic ancestors like Standard Oil used to do in theirs. They impose their will on governments and their users alike, writing the rules that regulate their conduct and having us agree to terms and conditions that no one breathing air has the time to read.

They destroy the sources of media most of us relied on for information for decades and have replaced those sources with new ones that peddle crackpot conspiracy theories and venomous hate speech. They have bloated themselves into unaccountable monopolies that inhale online advertising profits and use them to fuel their entry into more and more areas of our lives.

All the while, none of us are asking to see their advertisements. The products they offer clutter our screens and sap our attention. They further cloud and obscure the distant connection we’re trying to maintain with those we want to be closest to.

A tax on digital ad sales will not erase those ads. It likely won’t even limit their number or the frequency with which we’re subjected to them. But they can at least help fund the schools that teach our kids or the roads we drive on.

This idea should also be catnip for Republicans that complain about taxation, and especially those that complain about free speech and the power of tech companies to limit dissent. There is a real conversation to be had about who has the power to limit that speech, just like there is a crucial discussion to be had about what that speech entails.

This year’s budget for our Commonwealth won’t solve those issues. But it can solve a piece of one of our largest issues in our annual budgets, the lack of revenue to meet our expenses.

Opinion Contributor Mike Connolly is the principal of Salthill Communications, and former Deputy State Treasurer for Communications under Treasurer Joe Torsella. He served two tours in Iraq as an Infantryman and can be found on Twitter: @MD_Connolly. His work appears biweekly on the Capital-Star’s Commentary Page.

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