LAWS AND TAXES AND BIG TECH, OH MY! THE CASE FOR A FEDERAL EXCISE TAX ON TARGETED DIGITAL ADVERTISEMENTS CREATED BY USE OF PERSONALLY IDENTIFIABLE DATA.

• Author: Babcock, Alida F.

INTRODUCTION

Though there is no overt subscription fee for using "free" online platforms like Facebook, it is well established there is a hidden, continuous cost: the exchange of personally identifiable information (PH) for platform use. (1) Platforms that collect PII--the best known of which include Google and Facebook--make much of their revenue by selling digital advertisements to third parties. (2) This is a common business practice, and these new digital advertisements (ads) are microtargeted, meaning an advertiser can select a minute audience with which to engage. (3) Platforms enable advertiser microselection by either matching a third-party ad to a discrete target demographic (groups created by their collection of PII) (4) or by sharing somewhat de-identified consumer data itself, usually with consumer consent (however ill informed). (5) After such an exchange, advertisers reap the benefits of advertising to consumers through (generally) tax-deductible (6) targeted ads, and platforms enjoy the dual benefits of offering ostensibly free platform access to users while raking in massive profits by monetizing their information (7)--whether or not users want this. (8)

However, perhaps this system is the feature, not the bug. (9) Allowing a third-party company to use your PII to place targeted ads on your Facebook timeline seems a small price to pay while you enjoy "free" access to the lives of friends, family, and other members of your community. (10) Further, Professor Elea Feit explains that data-driven advertising enables businesses to "annoy fewer people with marketing emails because [they're] targeting folks to whom these ads are relevant." (11) Similarly, many internet users are reluctant to pay, at least monetarily, for access to social media platforms, and any loss of digital ad revenue could certainly have costly paywall downstream effects on the consumer. (12) Lastly, why should consumers worry about advertising, anyway? (13) Is it not a good thing that we now only see advertisements that directly appeal to us as individuals?

While there may be certain benefits to the current targeted ad regime, there are many downsides as well. First, while your PII is valuable, its economic benefit to you is negligible; meanwhile, platforms with millions of users amass large troves of PII and profit tremendously. (14) Further, though some PII may be "worthless" to you, or at least a fair trade for free platform access, the digital targeted ad economy is so lucrative that companies are incentivized to collect PII you may otherwise desire to keep private (15)--including your "ethnicity, location, major, interests, political affiliation, purchase history, personality traits, salary, car model, browsing history," and more. (16) Even if you do consent to the platform's collection of your data, aggressive PII collection exposes you to the risk of massive data breaches. (17) Such breaches are notoriously hard--if not outright impossible--for the average consumer to avoid. (18) Additionally, PII can be used for more nefarious purposes than mere commercial advertising, such as negatively influencing consumer behavior, (19) widening already cavernous social equity gaps, (20) and even destabilizing democracies. (21) Finally, we must ask ourselves if hyper-personalized, targeted ads in and of themselves are good for us. Scholars like Shoshanna Zuboff argue that these ads, far from promoting human flourishing, do nothing more than sow "epistemic chaos," breaking down shared values in a world where "norm violation is key to revenue." (22)

The balance of privacy rights, economic equity, and fair business practices is a difficult one, and though current legal regimes have attempted to address this issue, they have come up short. (23) However, the oft-understudied field of tax law has great, untapped potential as a corrective tool. (24)

This Note explores how to preserve the positives of targeted digital advertising while correcting the negatives, using a federal digital excise tax for ads created by use of PII as an innovative solution for a digital-age dilemma. It argues the Internal Revenue Code (IRC) should be amended to deny a deduction for PII-created digital ads, and instead a new, federal excise tax should be levied on these ads. These measures might be able to disincentivize pernicious corporate data collection practices, correct platform/user economic imbalances, provide solutions to privacy harms like data breaches, and overall balance the positives of PII collection against the negatives. Section II examines the current issues with targeted digital advertising and personal data collection by examining pernicious corporate uses of data, data breaches, the use of PII to perpetuate economic inequality, and the inability of the individual to stop these harms. Section III details the successes and failures of current legal regimes in addressing the aforementioned issues. Section IV proposes that, by disallowing a tax deduction for PII-created targeted advertising and implementing an excise tax on such advertising, tax law provides a practical remedy to the issues described in Section II. Finally, Section V discusses criticisms of such a tax, specifically addressing how it could be constitutional even under the exacting commercial speech standard in Sorrell v. IMS Health Inc. (25) The digital world is already here--digital taxes should not be far behind.

1. TARGETED DIGITAL ADVERTISING AND HARM

   1. What is Targeted Digital Advertising?

      It is no surprise advertisers want to know how people think--after all, the entire purpose of the advertising industry is to convince consumers to buy a product. In the recent years (26) of the digital revolution, there has been an explosion of hyper-personalized, targeted online advertising. (27) However, businesses have always courted consumers; (28) what makes this new type of advertising so particularly harmful?

      All ads are somewhat targeted. (29) For example, an ad for a cancer treatment is aimed at those seeking such a treatment, and an ad for a Missouri-barred lawyer will likely be aimed at Missouri residents with Missouri legal problems. (30) While it is true all advertising involves appealing to a purchaser, most early twentieth century ads were passive', the content and placement of such ads were largely independent of the individual consumer. (31) Rather, these ads targeted broad demographics, usually limited to "age, sex, and income." (32) There were exceptions--aggressive "ambulance-chasing" legal solicitation, for example (33)--but such exceptions were rare; generally, there was no way to target a particular consumer. (34) This all changed with the 1970s' explosion of psychographics, the study of consumer "lifestyle" data including political leanings, sexual preference, and medical information, among other data sets. (35) Even with this information influx, advertisers did not generally rely on personal information provided by the individual consumer to place ads; rather, they made educated guesses about what kind of person was watching the Travel Channel or reading Ladies ' Home Journal and ran ads for plane tickets and irons in each medium, respectively. (36) With the advent of cable, advertisers further refined their strategies, and as "[b]roadcasting became narrowcasting," advertising followed suit. (37) Though advertisers were able to narrow down their consumer base more accurately than ever before, they still did not know about you, the entire individual, only you, one member of the group of people that routinely watches Full Housed. (38) Now, in the internet age, it takes advertisers (or platforms) (39) only a few clicks to learn all about you the individual: (40) your location; other websites you have visited; immense information about your health, finances, marital status; and even how you feel at a particular moment. (41) This is today's targeted advertising: microtargeted digital advertising that uses an individual's PII to aggressively appeal to the user. (42) Additionally, today's digital advertising is reaching more people than ever--as of 2018, Americans consume five times more information than they did fifty years ago, (43) and most of that information is mediated through screens. (44) Given the proliferation of this ubiquitous new advertising, we must familiarize ourselves with the medium's negatives and positives.

   2. Are Targeted Ads Harmful?

      Digital targeted ads, though perhaps ostensibly innocuous, lie at the heart of a heated debate over the intersections of privacy and capitalism, (45) autonomy and coercion. (46) This Note aims to explain why the harms of unrestrained targeted digital advertising outweigh the benefits.

      Beginning with the benefits, digital targeted ads are more relevant to our interests because they expose us to products we are more likely to want. (47) Second, free platform use depends heavily on these ads. (48) For example, Spotify offers an "ad-free" premium membership for nine dollars and ninety-nine cents. (49) At first glance, this implies that the consumer who does not opt in to the "ad-free" membership is willing to watch targeted ads created by use of their PII (50) for free platform access. (51) Any attempt to stymie or heavily regulate targeted ads might reduce the ability of customers to make this choice, or worse, pass the cost onto consumers, forcing everyone to pay nine dollars and ninety-nine cents even if they were perfectly happy with the original arrangement. (52) In the business world, many have argued that regulating, forbidding, or heavily taxing digital advertising would irrevocably harm small businesses that rely on ads to support their websites or reach new customers--especially during a global pandemic. (53) For example, in response to a proposed Maryland tax on digital advertising, opponents argued that

      It's not just Fortune 500 companies that advertise online, it's your local barber, your local auto...