While I think the result of the virtual taxation discussion is going to be the adoption of an entirely non-controversial cash-out rule, I was shocked at the subtext: are we seriously willing to give up private property to avoid taxes? We need to remember why we like private property in the first place.
Imagine the following virtual world: the government owns everything; players own limited trading rights in personal property, but no rights in real property. The government is the final owner of everything, and uses its power to keep some people from gaining an unfair advantage in terms of game wealth.
Oh wait. We're not talking about a virtual world at all. We're talking about the Soviet Union. I'm not making a political statement here, just an economic one.
Why do we like private property? A couple of reasons. First off, if the government owns the property, redistribution often happens to people who are involved in government, rather than people who need the resources. We'll call this first problem "lobbying," although lobbying is the more democratic manifestation of this problem.
Second, private property causes private owners to internalize all costs imposed by resource use. So, if I own a pizza, I may conserve the pieces of the pizza to eat over several days. But if I share a pizza, I have an incentive to gobble as many pieces right now as possible, before other people get them. (For the economically minded, this is your basic econ 101 tragedy of the commons.)
Third, private property ensures that property doesn't become so fragmented as to prevent it from flowing in the stream of commerce to people who need it. If I want to buy a tractor, but one person owns the steering wheel, another owns the engine, and a third owns the wheels, it becomes too costly for me to negotiate with all these people to buy a steering wheel.
All of these reasons apply to virtual worlds. And taxation doesn't threaten any of them -- in fact the story of taxation is an incredibly good story for us. Why? Taxed activities are activities that are generating value. Do we want virtual worlds to generate value? Yeah! Taxed activities are activities that are shared by enough people in a society to have recognized utility. Do we want virtual worlds to take center stage in society? Yeah!
And taxes are not total. No taxes are 100%. Seriously, if anyone reading this is willing to give up private property to avoid taxation, please, give me all your property. I'll pay the taxes on it.
This "let's ditch property to avoid tax" subtext is part and parcel of the "let's eliminate private property in virtual worlds to avoid people from outside the world 'importing' the advantage of their paychecks into the world" approach. But why don't we collectivize property in the real world as a means of preventing certain players from getting an unfair advantage?
I mean, if you don't like e-babies, how can you stand debutantes? If you think there's a difference, someone tell me why it's ok that Paris Hilton "imports" wealth into her game o' life through inheritance, but it's not ok that a dentist imports wealth into a virtual world through his real world bank account.
The reason we put up with e-babies and debutantes is because we want to create incentives for people to invest and build. In the context of virtual worlds we want to create incentives for people to invest and build in virtual worlds. It's as simple as that.
Are there serious concerns about impacting games? Yes, there are. But what an enormous shame it would be if, in order to protect games, we threw away the possibility of a global three-dimensional social context, in which parties invest, build, and work. Protect games. But don't throw the baby out with the bathwater.
