50% tax on digital ad revenues for safer social media: MIT economists

Massachusetts Institute of Technology (MIT) economists Daron Acemoglu and Simon Johnson propose a 50% tax on digital ad revenues over $500 million to make social media safer. This initiative aims to reduce harmful content and promote healthier online environments by shifting away from engagement-driven, ad-based models.

Who are Acemoglu and Johnson?

• Kamer Daron Acemoglu is a Turkish American economist who has taught at the MIT since 1993, where he is currently the Elizabeth and James Killian Professor of Economics.
• Simon Johnson is a professor of entrepreneurship at the MIT Sloan School of Management, where he is head of the global economics and management group.

Inspired by health campaign against smoking in US

The proposal draws parallels to the mid-20th-century public health campaign against smoking, which saw adult smoking rates in the U.S. drop from over 40% to around 10% due to restricted smoking areas and higher taxes. Similarly, Acemoglu and Johnson believe that taxing digital advertising could mitigate social media’s negative effects on mental health and misinformation.

Banning social media isn’t practical, but taxing ads can help

In their recent article in “Network Law Review,” the economists highlight how companies like Google, Facebook, and X (formerly Twitter) rely heavily on digital ad revenues, driving them to promote engaging but often harmful content. The economists emphasize that banning social media isn’t practical, but taxing digital ads can help.

Concerns about social media

• Addictive nature: Social media can be addictive and harmful to individuals and society, just like smoking. They emphasize that the current model prioritizes capturing and retaining attention at all costs, exacerbating mental health crises, especially among children, as highlighted in recent U.S. Senate discussions.
• Content promotion: Acemoglu and Johnson warn that business models promoting inflammatory content can lead to political radicalization and violence. They cite the role of Facebook in organizing genocide against minority Muslims in Myanmar and express similar concerns for Sri Lanka and India. They also highlight how AI technology enhances advertisers’ ability to provoke anger and engagement, worsening these issues.
• Market influence: The economists criticize the dominance of a few tech firms in shaping technology and its uses, prioritizing automation, surveillance, addiction, and data monetization over beneficial innovations.
• AI concerns: Advanced AI could worsen the spread of harmful content by enhancing targeting.

Solution: Global tax approach

• Tax details: A 50% fixed tax on annual digital ad revenues over $500 million. A 50% tax on high digital ad revenues could shift the business model away from ad dependency.
• Target companies: Major players like Google, Facebook, and X (formerly Twitter).
• Objective: Promote alternative business models, such as subscription-based services, instead of ad-driven ones.
• Global adoption: Ideally, implementing this tax globally, starting with the U.S. and extending to other G7 economies.

Offshore challenge: Acknowledging the challenges of enforcing such a tax, including potential offshoring by companies to avoid taxes, the economists stress that the goal is to fundamentally change the online platforms’ business model, not just generate revenue.

Tax revenue projections

The proposed tax aims to redirect focus from ad-based models to safer, sustainable content creation.

• Revenue share: Digital ad revenues are expected to reach $600 billion globally in 2024.
• Major beneficiaries: Alphabet (42%), Meta (23%), and Amazon (9%).
• Company models: Meta earns over 95% of its revenue from digital ads, while Alphabet earns about 77%.

Long-term vision

• Taxation as a catalyst: Taxing digital advertising can drive fundamental changes in online platform business models.
• Promoting quality content: Shifting away from ad-driven revenue can lead to safer, more sustainable, and higher-quality content.