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The innovative world of taxing to control behavior

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There's no such thing as a free lunch. Nothing is "free" online, either.

Instead, users trade their information in exchange for some service, vaguely aware that the company's side of the bargain is free access to data it can turn into profit. Now the French government is looking for a way to tax this activity.

A recently issued government report advocates what some have called a "privacy tax." This tax would essentially be a mechanism to punish companies that profit from misuse of consumer data. Proponents argue that such a tax would properly align incentives in the marketplace the way a carbon tax might create incentives for companies to take better care of the environment.

"What we recommend is to tax companies' behavior that is not in the interest of their users and not in the interest of innovation and growth," said Nicolas Colin, a tax inspector for the Ministry of the Economy and Finance in France and a co-author of the report. "The French tax on non-compliant data collection behavior can really be compared to a carbon tax: In both cases, it creates an incentive for companies to change their behavior in the public's interest – less pollution, more data protection, user empowerment and more innovation through smart disclosure."

Critics have said that the idea behind the privacy tax would be nearly impossible to manage, it would force government bodies to make rulings on very technical matters, and collection of the tax could itself represent a privacy violation. 

"Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it." – Ronald Reagan