California’s new governor, Gavin Newsom, has an ambitious plan to reduce historic levels of income inequality in the state. He announced on February 12 that his team will be working on a “Data Dividend for Californians” plan. This proposal will mandate that large tech companies earning revenue off from users’ data would have to pay dividends back to state residents. How exactly this would work is still up in the air. There are two similar cases California could choose to follow – Alaska’s Permanent Dividend, which redistributes oil revenues, or the European Union’s digital taxation plan.
California’s data dividend is similar in concept to the aforementioned dividend that Alaska pays its residents every year. Eventually Alaska’s oil will be depleted, leaving future generations without this lucrative natural resource. The Permanent Fund was created to reserve 25 percent of oil companies’ revenue for a dividend paid out to every qualifying Alaskan resident. State leaders established the fund with the expectation that future Alaskans would still be able to benefit from the state’s oil reserves long after they will be exhausted.
Launching a similar plan in California, however, would come with some hiccups. Thankfully, Facebook has made this task somewhat easier by including its revenue per user on its quarterly statements. In 2018 the company made $109.74 per user solely from advertising.
Simply mimicking the Permanent Fund and fractioning out this revenue per user is overly simplified, though. Advertising is based on a user’s preferences and activity, data that is shared between retailers and social media networks. This data is unlike oil in that its value is not intrinsic, but circumstantial. Most personal data is worthless unless it’s integrated with other data.
Additionally, oil revenues can easily be pinpointed to specific companies; advertising revenue, however, is far more unclear – while Facebook and other tech companies are easy targets, data collection often begins with retailers who provide it to social media companies that churn out user-specific ads. Does the revenue generated from this data sharing belong to retailers or tech companies? How do we even begin at attempting to separate revenue streams and putting a value on data?
A much simpler approach is underway in the European Union, where lawmakers are proposing up to a 5 percent tax on large tech companies’ gross revenue. The argument is that companies including Amazon, Facebook, and Google have long taken advantage of redirecting their profits to low tax zones in the EU, such as Ireland. The proposal involves taxing companies based on their users’ locations rather than a company’s headquarters. This solution has its own set of challenges, though – some critics view it as a double-taxation revenue grab at American firms. Additionally, countries with lower taxation rates argue that they benefit from multinational tech firms booking pinpointing profits within their borders, which explains the lack of Irish support for the bill.
California is on the right track in attempting to address this issue. This is not a temporary problem – as technology becomes more engrained in our society, data mining will likely be incorporated into many firms’ business models. Logically, a data dividend makes sense. Implementing it, however, involves defining social media users’ role in large tech companies. Should data contributions be considered investments, thus naming users as equity holders? Do users care enough about how their data is being used to demand reform? Governor Newsom’s team certainly has a lot of work to do in answering these questions.
Image credit: Mike MacKenzie/Flickr
Jenna Ammann is a student finishing her senior year studying Corporate Finance and Hospitality at UMass Amherst. She has a focus on investigating environmentally and financially sustainable food service business models. Jenna is from Westport, Massachusetts.