Keep Azeroth Tax Free!

With massive budget deficits, an ever-increasing trade deficit, and fear that our aging population will be unable to support spiraling Social Security and Medicare costs, the Republicans have finally begun to consider softening their hardline stance against imposing new taxes.

Bad news, rather than try to raise revenue from companies locating off shore or megacorps enjoying windfall taxes from manipulating oil prices, the Republicans prefer to tax “virtual places” like Azeroth and Second Life’s user constructed “the World”.

I know the current crop of Republicans tend to live in a happy fantasy world where we we are treated like liberators in Iraq, all Americans are enjoying the benefits of our booming economy, and deregulation cures cancer and whitens your teeth, but GOOD GRIEF!

I swear to God, it’s like Terry Prachet working with Neal Stephenson instead of Neil Gaiman.

What’s next, real estate taxes on Boardwalk and Park Place? Capital gains taxes on Yahoo’s “virtual portfolio” tracker? Income tax every time I fantasize about winning the lottery?

Why Congress needs to stop playing with itself and get a life below . . .

Yes, despite a plethora of real world targets for tax reform, like U.S. companies that move their corporate headquarters off-shore to avoid paying any taxes, folks in Congress are considering how to tax the “virtual economies” of massively multiplayer online roleplaying games (or “MMORGs,” which also makes a great battle cry for your “avatar” as you go charging into battle). Apparently, taxing virtual transactions without PACs is a lot more viable politically than taxing real industries or real capital gains.

Bad enough that news organizations are investing in “Second Life” bureaus while our newspaper and broadcast media conglomerates downsize real world news staff in a never ending quest to cut costs and maintain the double-digit profit growth Wall St. demands. Bad enough that major businesses are now investing heavily in Second Life avatars of themselves as a form of market research. But now Congress has decided to buy into this fantasy?

This article is chok-full of statistics that almost make it seem reasonable. Except for one little problem this is all made up! Yes, Second Life’s world may have a tremendous GDP, but so what? Didn’t any of these guys play “Monopoly” growing up.

Because, as this more sensible article points out, the tax code more than adequately handles real life issues with such “virtual games.” Lets run through a few possibilities.

1) I make a fortune in Second Life and cash out. The tax code already handles this, the same way it does gambling winnings. anything over the value of my monetary investment is part of gross income and I pay income tax on it.

2) I build up real estate in Second Life and sell it in the real world. Again, this is taxable income to me. No different than if someone paid me a consulting fee to coach them on how to do it themselves. The tax man gets his cut no problem.

3) I swap my Second Life property for real world property. O.K., a little trickier to calculate, but not that hard. There is a long-established regulation and case law around barter and swaping. If there is a significant difference in market value, the IRS will tax it just as surely as if I “swap” these useless “dollars” for the item you give me. Valuation might be a bit of a pill, but it doesn’t present a new problem that requires revision of the tax code. To paraphrase an old saying: we know what kind of an asset it is, now we’re just arguing about valuation.

So what we’re really talking about here is somehow treating the imaginary economy of Second Life or Warcraft or any other MMORG as if it were a real economy. To which I ask, “say what?” Again, fantasy economies are nothing new in gaming. To the best of my knowledge, we have never charged anyone income tax based on their Monopoly winnings. Do we seriously think that what is going on in MMORGs (assuming no real world money changes hands) is any different from my swapping St. James and New York for Water Works and the Electric Company?

But if we are going to start treating imaginary transactions as wreal transactions, why shouldn’t I get all the tax breaks of the real world as well? I should be able to claim depreciation on my +12 Hackmaster and write off the cost of my “Virtual Island.”

Heck, perhaps we will develop a whole new cottage industry of virtual tax shelters? After all, if my imaginary money in an imaginary world can generate enough attention to get taxed, why shouldn’t I be able to deduct my imaginary losses? Perhaps I can look forward to a day when I can tell the IRS, “Sure, I had $100K in adjusted gross income, but I get to deduct my bad investment which cost me 500K Linden Dollars. And, of course, when Voldemort hit Daigon Alley and the gnomes closed up the Wizard Bank, I lost all my golden sickles. So I think I actually have a refund coming to me.”

Or perhaps someone will build a Grover Norquist avatar to fight to keep Virtual Economies tax free? Will Republicans build a “Bizzaro Bush” avatar who wanders Second Life and says “We need to raise taxes to support our troops. Remember, we fight the Covenant on Halo so we don’t have to fight them here!”

Why not? It makes as much sense as taxing virtual transactions. Certainly it is no more ridiculous than wondering how to tax virtual economies while letting real companies move to offshore tax havens.

Stay tuned . . . .

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One Comment

  1. Gary says:

    Alchemy is my primary World of Warcraft character’s profession (the job you do to make money in the game in between killing orcs and murlocs, and whatnot). I would gladly pay taxes to the govenment in the form of barter. Say, some potions of greater intellect? I think they would do a world of good.

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