For the half-year to 31 December 2014, the IPKat's regular team is supplemented by contributions from guest bloggers Rebecca Gulbul, Lucas Michels and Marie-Andrée Weiss.

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Thursday, 17 April 2014

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?

12 comments:

Anonymous said...

The question of a fair tax system is inextricably intertwined with the question of what taxes on what income should be considered fair.

This is not a black and white question.

To then layer such a question with the notion of IP involved with 3d printing and the possibility of a violation of intellectual property rights - and to attempt to cover this topic in a scant five paragraphs seem an ultimate exercise in futility.


Much like an estimate of the size of the black market - the reason it is called the black market is because it is unknown. Any attempt at an estimate is immediately suspect.

For example, is drug trade included in the estimate? That single factor can change the estimate by several orders of magnitude. In fact, one leading argument for the legalization of drugs is the desired tapping of tax revenue.

As far as the 3d manufacturing - you dance on the edge of the divide between home creation/consumption (traditionally NOT considered manufacturing - think home gardens - and a (widely viewed as perverse) Court case of Wickard v. Filburn.

The point of the home 3d model is that each supplies their own, and no such manufacture for sale to others needs take place. The assumption of a workplace for others is not sustainable.

That is not to say that tax impacts are avoided. The obvious one is sales tax, as commerce itself has the potential to be so drastically altered as not be recognizable by today's standards.

Long story short: what type of solutions are you hoping for when you have not even obtained the right question(s)?

Pedro Malaquias said...

It seems to me that the reduction of tradable goods will be compensated by an increase in tradable services. Further, any free capital will be allocated to other (taxable) areas.

Andy J said...

It is interesting to contrast this analysis of the impact of 3D printing with the slightly older (by several thousand years) activity of home cooking. No-one would consider home cooking from basic, raw ingredients to be a threat to taxation revenue, so why should we fear the tax loss implications of home manufacture? The actual range of items the home 3D printer is capable of producing is always going to be limited, if only because making components for relatively complex items will still involve a degree of technical expertise not possessed by the average householder, and it may not be practical to break down larger items into sub-assemblies small enough to made on a domestic 3D printer. The list of goods which are unlikely to be affected by home manufacture is extensive, and also includes the more expensive items found in the home: Electrical and electronic goods, white goods, most furniture (due to size limitations), clothing, bedding, carpets, flooring and decorating (paints and wallpapers), cookware used at high temperatures, and much else. There is also the cost factor. Many products will cost far more to produce at home simply because the printers will be general purpose machines, whereas mass-manufacture can obtain economies through bespoke machinery. Consider two examples: printing a book at home on an inkjet printer and manually applying the binding, compared to printing on a conventional press with automated binding, or alternatively, consider manufacturing a family sized car by the two methods. Furthermore, based the 3D printing technology known today, it is unlikely that just one machine will be capable of performing the various different fabrication methods required to build more complex items.
That is not to say that there will be no disruption caused by the possibilities of home manufacturing, but the pace of change will be gradual rather than cataclysmic so allowing savvy manufaturers and politicians to stay ahead of the changes in consumer behaviour. I predict that simple toys and games like the Frisbee are among the most vulnerable sectors, initially.

Michael Factor said...

I think that the obvious solution when someone is involved in domestic manufacturing, such as, say cooking dinner, he/she should fairly calculate the increase in value of the cooked food over the raw ingredients, add in a factor for waitering to the table and washing up, and tax it at, say 20%. He/she, will, of course, be entitled to a tax break in VAT paid on the raw ingredients, and can, on producing evidence, which is easy with smart phone technology, obtain tax write-offs for ingredients that are burnt, or otherwise rendered unusable, such as well past the sell by date.

This can be extended to domestic laundry, with discounts on VAT on electricity and an allowance on wear & tear of the requisite domestic appliances. Where one is lucky to have a helpful teenage daughter, as I do, one should not let her do anything around the house without first paying national insurance and the like.
It is anticipated that the additional income generated from stay-at-home parents and from their second jobs will go a long way to alleviate future pension issues.

Anonymous said...

I think this is an appropriate time to reconsider how we organise our affairs. Tax is taken 'forcibly' from people and companies on employment, sale of goods etc. However in the information economy value comes from other things, and 3D printers are a product of the information economy. You (probably) cannot tax information, so new ways of taxing/raising money are required. I suspect ultimately (many years from now), governments will rely on donations. But that will be a different system where a government will truly have demonstrate it is value for money. And that will mean obtaining people's trust and making them think of collective effort in a new way. In the meantime we'll have to cope with the changes forced upon us by 3D printing, robots, high frequency trading, etc.

Harold Burstyn said...

I think your concern is unnecessary. It's certainly true that an important part of current public revenue comes from taxing the transfer of goods and services. (That's especially noticeable to me, as my annual visit to Israel includes shopping in Eilat.) But until a century and a half or two centuries ago most production was home-based. The shift back to home-based production would thus make more urgent the shift of taxation back primarily to income rather than sales. Cf. J. K. Galbraith on the unfairness of sales compared to income taxes. That shift would of course do nothing to restore revenue from IP rights, but I doubt that infringement from home-based production will count for much in the general scheme of public revenue.

Anonymous said...

Harold,

I find your comment of "not counting much" inexplicable if there is a wholesale shift to private home based manufacture.

Merely looking at the threat of digital copying to the current business models in music and film screams the very opposite.

Unknown said...

If the home 3D printing revolution does come about as many 3D printing pundits predict, it could affect retailers and logistics providers the way desktop printing affected printers and typesetters – and thus impact tax revenues.

But, what if home 3D printing does not take off as predicted? After all, 3D printing is a long way from replacing conventional manufacturing, though the technology is improving and some, 3D printing developers in China for example, believe the technology is better employed in high end applications such as airplane parts. What will the impact to the retail, logistics and tax regimes then be?

I think the real fear is that the industries and governments that feel threatened by 3D printing might use IP laws in an attempt to stifle 3D printing development the way the entertainment industry used copyright law against P2P networking.

Anonymous said...

Unknown,

I agree with you - but only to an extent.

There is a clear difference between copyright and patent protection that comes into play.

Copyright has independent creation and Fair Use exceptions that directly tangle the powerful "haves" and the laws they seek to push punishing the 'incidental' type of uses that Joe Average (or the household that may want to have a "3D printer" capability. It is not too high a jump to compare the computer right now as a type of "3D printer" for digital goods.

The difference that must be kept in mind is that in the patent realm there simply are no independent creation or Fair Use defenses. Patent infringement is strict liability.

This is a huge difference that must be taken into account.

Anonymous said...

So... heading in the direction of communism? It might not be so bad, you know. A near scarcity-free society. We'll just need people to grow/harvest the plants, do service, and work the machines. A lot less labor means a lot more free time for all, and less wealth inequality.

Anonymous said...

Anonymous at 2:55,

With no disrespect intended, to rise (lower?) to that level of Pollyanna acceptance, one must ignore reality and the human condition to such a level as to be committed.

Human nature simply will not allow what you are thinking, and there will be no shortage of those more than willing to take you down that garden path and take you for whatever you are willing to give.

Andy S said...

How about simply switching to a system (more) focused on taxing income rather than expenditure? This may play into the hands of the rich who can afford to offshore themselves, but that is a problem whatever the tax structure.

This post is too short to go into all the other problems with this, but income is much certainly more traceable than expenditure and thus much easier to tax.

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