3D printing: be careful what you wish for?
This blog post will be about taxes. In particular, we will consider whether the utopian vision of "every home a workplace" thanks to 3D printing also contains a dystopian element from the perspective of the public interest in a socially responsible tax system. Before Kat readers immediately decide to eschew the rest of this blog in favour of watching grass grow, engaging in a series of yawns, or doing anything else seemingly more interesting than having a discussion on income taxes, they should remember this: one of the great challenges of any modern government is to maintain a fair tax system whereby those who owe taxes should pay and where the number of those who evade their responsibility is minimal. One may disagree about the scope of public services funded by taxation (consider the Tea Party movement in the U.S.) but, whatever the scope of public spending, it must ultimately be paid for by public tax receipts.
Against this backdrop, this Kat was struck by a comment that he heard made on a recent podcast broadcast, in which it was claimed that at least 20% of the entire US economy takes place in the black market. While this may not reach the proportional size of the black market attributed to national economies such as Greece, Spain and Italy, the figure seemed to signal an increasingly expanding hole in the foundation of the US tax collection system. And it got this Kat to wonder—might not the world of innovation, invention and creation contribute to this phenomenon? From there, it was a quick leap to the projected brave new world of 3D printing, with every man and woman, within the confines of the home, simultaneously both a potential manufacturer and consumer. Let’s think about classic mass manufacturing. Machinery is bought, increasingly skilled labour (and perhaps proprietary IP) is brought to bear on manufacture, and goods are then produced and sold.
Within this paradigm, taxable income is generated at a number of sources. The fact that the manufacture is mass imposes a material degree of tax discipline on the actors involved. Seen in this way, the prospect that 3D printing will turn every home into a potential workplace disrupts this arrangement. True, the manufacturer of the 3D printer will sell its IP-protected (more or less) product (and pay tax on the income generated), as will the purveyor of the materials (also perhaps enjoying IP protection) used to enable the 3D manufacture (and pay tax on the income generated). The software files used to instruct the 3D printing machine, if not freely available to the public, will also generate revenues (and taxes). So will various ancillary services that will develop around this core ecosystem. But, and it is a big “but”, the actual product that is made will not be sold, not wholesale, not retail, not at all. Within the confines of the home, it will be made and then consumed, all without generating any taxable revenue. As such, there will be even fewer tradable goods (about which Nobel Laureate in Economics, Professor Michael Spence, here, has brought to our attention) both within and between countries. If so, and on one view of 3D printing, the greater the success of 3D printing at the private level, the potentially greater is the harm to the legitimate public coffers.
This Kat recognizes that this focus of the potentially deleterious impact of home-bound 3D printing deviates significantly from that which is typically expressed. Thus, especially from the IP perspective, what is of concern is that home-bound manufacture enables a new vista for infringing various third-party IP rights and thereby depriving of such rights holders of their just compensation. This Kat does not disagree. In the past, the sheer impossibility of enforcing IP rights when the alleged wrong-doer is acting within the confines of his home, as well concern over invading one’s privacy, has led to exceptions for private copying and the like, garnished a bit with a levy sometimes imposed on the manufacture or sale of the devices used for such copying, the better to compensate rights holders with.
But the loss of income that has accompanied this (mostly copyright-focused) approach seems hopelessly over-manned when we consider the future possibility of every man and woman being a potential home manufacturer made to order. This vision, taken its logical conclusion, could lead to a situation where the black market is not only based on tax evasion largely in virtually untraceable services but becomes a structural by-product of the way that goods are made and consumed. Solutions anyone?
Against this backdrop, this Kat was struck by a comment that he heard made on a recent podcast broadcast, in which it was claimed that at least 20% of the entire US economy takes place in the black market. While this may not reach the proportional size of the black market attributed to national economies such as Greece, Spain and Italy, the figure seemed to signal an increasingly expanding hole in the foundation of the US tax collection system. And it got this Kat to wonder—might not the world of innovation, invention and creation contribute to this phenomenon? From there, it was a quick leap to the projected brave new world of 3D printing, with every man and woman, within the confines of the home, simultaneously both a potential manufacturer and consumer. Let’s think about classic mass manufacturing. Machinery is bought, increasingly skilled labour (and perhaps proprietary IP) is brought to bear on manufacture, and goods are then produced and sold.
Within this paradigm, taxable income is generated at a number of sources. The fact that the manufacture is mass imposes a material degree of tax discipline on the actors involved. Seen in this way, the prospect that 3D printing will turn every home into a potential workplace disrupts this arrangement. True, the manufacturer of the 3D printer will sell its IP-protected (more or less) product (and pay tax on the income generated), as will the purveyor of the materials (also perhaps enjoying IP protection) used to enable the 3D manufacture (and pay tax on the income generated). The software files used to instruct the 3D printing machine, if not freely available to the public, will also generate revenues (and taxes). So will various ancillary services that will develop around this core ecosystem. But, and it is a big “but”, the actual product that is made will not be sold, not wholesale, not retail, not at all. Within the confines of the home, it will be made and then consumed, all without generating any taxable revenue. As such, there will be even fewer tradable goods (about which Nobel Laureate in Economics, Professor Michael Spence, here, has brought to our attention) both within and between countries. If so, and on one view of 3D printing, the greater the success of 3D printing at the private level, the potentially greater is the harm to the legitimate public coffers.
This Kat recognizes that this focus of the potentially deleterious impact of home-bound 3D printing deviates significantly from that which is typically expressed. Thus, especially from the IP perspective, what is of concern is that home-bound manufacture enables a new vista for infringing various third-party IP rights and thereby depriving of such rights holders of their just compensation. This Kat does not disagree. In the past, the sheer impossibility of enforcing IP rights when the alleged wrong-doer is acting within the confines of his home, as well concern over invading one’s privacy, has led to exceptions for private copying and the like, garnished a bit with a levy sometimes imposed on the manufacture or sale of the devices used for such copying, the better to compensate rights holders with.
But the loss of income that has accompanied this (mostly copyright-focused) approach seems hopelessly over-manned when we consider the future possibility of every man and woman being a potential home manufacturer made to order. This vision, taken its logical conclusion, could lead to a situation where the black market is not only based on tax evasion largely in virtually untraceable services but becomes a structural by-product of the way that goods are made and consumed. Solutions anyone?