When Governor Arnold Schwarzenegger was running to recall democratic governor Gray Davis he faced over one hundred republican opponents. One of them was porn-peddler Larry Flint. America's most well-known smut publisher was ignored in the election, but now he might be part of the solution to save the state's spending problems.
A California state representative is proposing a new bill dealing with the state’s huge budget shortfall. Currently the state of California is so increasingly in debt that Arnold will never Terminate it. Despite being the globe's eighth largest economy (an economy larger than France or Italy) the state government is trying to balance the budget by any means available and investigating taxing pornography, including the production and sale of pornographic videos — by 25 percent.
To an economist this initially sounds like a good idea, but it might be the least enforceable tax. Why? Productions can fudge their production data, their sales data, its like requiring a waitress to disclose her tips. On the positive the idea is ideal because in theory it is one that won't cause any change in behavior — doesn’t generate any excess burden on the economy. Or will it? The ratio between the amount of web surfers looking for free porn and those who actually purchase it is high.
Overall though I believe the demand for pornography is quite inelastic (high-brow economic word), so sales probably wouldn't be reduced much if porn prices rise. This hinges on the success of producers passing this tax along to its consumers.
Demand is only one side of the skin trade market. Having this tax only in California gives producers an incentive to move out and pick up operations in a new locale. I am sure porn video producers are not too attached to living in Southern California, a leader in this and all other aspects of the movie industry; but production cost of this type of production are low and ingenious, and entrepreneurs in this industry are fairly mobile already. Final Cut can be run on a laptop you know.
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 move production elsewhere or go out of business. You can bet one thing is for sure, this tax will certainly reduce overall output in this major California industry. And it will affect other industries that feed off Porn Valley such as the plastic surgery trade.
Ultimately, if state and federal governments start poaching people who buy pornography, what is next? People who buy milk?
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