The rising price of L$ vs. USD – Is taxation perhaps the next step for a stability?

As I’ve noticed in recent weeks (months for that matter), the amount of L$ = 1usd has jumped roughly 30pts since the inception of LindenX. I remember a time in June, before LindenX 40usd = 10k L$ (250).

In recent months and even weeks we have seen dwell go by the wayside and inflation skyrocket. Even in the last couple of weeks from say mid 1/6 to end of 1/6, valuations have made the value of 1usd vs. L$ change dramatically, for the worse especially those who are trying to sell or those who bought thinking the mkt. had stabilized at the 265 L$ = 1usd range.

Top on a 3.5% commission fee and you see a slippery slope of economics that might be, but is not known to me to be proven by releasing more land than customers can buy (on avg.)

Yes of course you have the large land buying groups snatching up large sections in the newly open SW corner of the map (see van Gogh and surrounding areas), but you also combine this with the general mass land buying of large parcels even Sims with the intent to sell off at a profit. Is this a fair capitalist market economy; yes. However, is this fair without representation or taxation on just rampant abuses (in some cases), which I see as a pretty solid correlation to the inflation? Certainly one would think the answer to this would be no.

While I personally abhor taxation in many forms, I think that something needs to stop the proverbial fiscal bleeding as merchants will have to raise prices to deal accordingly. The problem is many people who sell goods are not fiscally aware and in turn are losing profits without their knowing. It will take a massive push from sells of goods to balance out the rising inflation to make selling L$ as fair as buying them.

As for whom to tax, that is an issue (if to do it at all) that should be discussed and debated on many levels. I cannot say I have a concrete plan for doing so as I do not have all the market data for the last 2 years, but I think something needs to be done. As LindenX takes their 3.5% transaction fee (a pretty disguise for a tax on sales), why are the members, buyers, seller, merchants, consumers, etc...not allowed the same privileges?

This all certainly perplexes me and I hope that some kind of open discussion that merits a reasonable solution to stop inflation. The ill effects such a violent change in the SL is and will be causing on members who make goods for sale and subsequently those who buy them is certain to arise at the current rate unless something is figured out swiftly, with a mass consensus of input.

-fin-

-- Calix --

Calix, pardon, but I question the basic premise of this post. From what I've seen the L$ is devaluating, not inflating.


I used to sell L$ at $4.oo + / 1000. Now I can barely get $3.40. How does this signify inflation? Or did I get the point of your post backwards somehow?

Later: oh hold it, yeah did read it backwards. You mean the L$ is inflating for sellers rather than buyers. It was the "inflation" concept that threw me.

Basically, the L$ is "devaluating", which means you get more of them per US$1 spent. This as you've pointed out, is bad for merchants, as they have to either sell more of what they sell to make a buck... or they have to raise prices (which indeed is inflation).

I've long recommended to LL to stabilize the L$ at $4 / 1000. They're the big dog-- they can pull it off. Every time I mention this, a few emotionalistic people start screaming "infringement of freedom"... but that is baseless rationalization. There is absolutely no valid reason I've seen mentioned anywhere on these forums for failing to stabilize the L$/US$ ratio to L250 / US$1 (or US$4 / 1000). It would help stabilize the economy tremendously. Other methods can be used to siphon unwanted L$ from the economy.


I don't know as I'd go for "taxing" (giving L$ to people just to take 'em back in taxes is a little silly... just as it is in RL). But charging people for services they want might be sensible. A sales tax might be sensible even (in fact, that would probably even be the most viable method to siphon off excess L$).

So thinking about your post.. you just might be right.

Yes backwards...my fault for not being clearer, but your point on loss is what you are getting at correct? That is the gist of this this post, esp. if you look at market data spanning 30 - 60 - 90 days and more.


-Calix

So what now? Anyone with additional ideas on this subject or will we just let the value of the L$ get up to 310 to 1usd again?

This is a serious concern on so many fronts that to enumerate all of them would be a 40 page essay, and until a realistic theory is tested and proven to work the ideas on many of these threads are just rhetorical theory without base precedent.

It's probablly time for some sort of collective action by the members to get going as they do in fact have the power to stop the devaluation and cause a stable market economy.

Until then we will bleed and bleed and bleed... :/

- Calix

However..... is it really fair for everyone to suffer, when it's only the perhaps 1% who make a real life living out of buying and selling in game who are really affected?

Most people, I am sure, would be quite content to have fixed buy and sell amounts, so they don't get messed around trying to 'get the best deal'.

After all, it's game money in a game. Why get so het up about it? I really think that the inbuilt facility to convert L$ to real $ and 'cash out' is not only a bad drain on LL's resources (from money that you and I are paying them, that they should be investing in improving the game), there are quite possibly issues and laws regarding tax and other RL nasties that are getting beyond the grey area to quite dodgy.

I'd love to know whether LL have ever been approached by the IRS about how they keep track of all these transactions of money 'out of the game'.

Lewis

1%? Sadly I think there is a lot more than that and that. And the amount of money traded is the actual issue not the amount of people doing it...you can have someone who buys 10 sims to sell off as parcel or someone who sell virtual couches or prim hair.

The trickle down economics of this is the same no matter the amount of money traded. Deflation effects ppl all the same, in fact it hurt those who transact less b/c the exchange rate is worse based on converting less L$. Hence this hurts the smaller seller or trader moreso than the mass mogul who can affect SL economy with a flick of the wrist selling millions of L$ at a time.

My essential question was should we tax the members, should we tax the ppl who have the power to cause such violent change in the SL economy, which can in turn effect 120k+ members?

As for the IRS I read a comment by SL Legal Advisor on that specific topic and they said to date the IRS had nothing on the books regarding virtual money making, but they hedged their bets and offered to seek an atty. and accountant if one is concerned.

If you make a certain amount of money in game you can in fact write it off as hobby income with regard to taxes in the US. Additionally tax law is case specific, esp. in the USA. You have state taxes, which vary from state to state and then federal taxes. The problem is SL isn't just the USA and LL is located in CA so their state and federal taxation jurisdiction with regard to funds is sold and bought is not global nor always applicable to other states, let alone countries.

As for the 'drain' LindeX takes 3.5% on transactions, some might consider this a fee, some might consider this a tax as they have a monopoly on the trading after the demise of GOM and others.

-Calix

This is perhaps the only reasonable post I've seen on this subject. Fixed rate would allow supply and demand to be placed squarely on the product or service. It would stop day trading on L$ and market dumping.

Unfortunately what would happen if LL set a fixed rate for buying/selling $L is that we would see a flourishing black market with third-party sellers. No one is going to buy $L at $1/$L250 from the Lindex if they can get it for $1/$L230 from IGE or eBay.

A search will reveal exhaustive number of threads on taxes in SL, including the history of the prim rez tax.

You might want to clarify your terms. Only governments tax. Companies charge fees.

Premium customers already pay a fee - land tier. Raising that fee, which of course will happen as LL's costs rise, could backfire as many people already feel that tier is expensive. If LL charges a fee on sales, that cost will be passed on to the customer.

LL could start charging for basic accounts, however, those customers would expect to get a larger stipend - which would probably devalue the $L even more unless that stipend was purchased from the Lindex. Personally, I think an account option that included a set fee each month and auto purchased $L for you might work for lots of people - help them overcome their reluctance to pay for content by making it easier.

When a currency devalues, costs rise. I've noticed that prices are slowly going up. I think content creators are trying to find the balance between making their time work something and making their product affordable. I've seen the opposite happen too. When the value of the $L rose, prices went down. It always takes awhile for this to get rolling though... people want to see if a change is a trend before doing all the work to reset their prices.

I very much agree with this comment and until sellers change prices to correlate to the deflation change seems unlikely without some form of radical change, ie tax, flat fees, market exchange trade values, etc...

I can't predict what would work best, but I do believe that if sellers recognize on a more global scale that the L$ is deflating and change price accordingly things will balance out.

One can only hope.

- Calix

Surreal, I'm try to set a scam up a racket here. Why you got to go mess it up for me

Actually that is a very good point I didn't consider.

Besides taxes there are other way to control the economy. Loans, bonds, intrest paying savings accounts. More sinks could be developed, like entry fees to feature sims. SL government Lotto.

Allow people to pay less monthly land fees and waive L$ stipend.

Thousands of other ways I'm sure

But on the flipside, what person would sell his L$ at $1/280 on IGE when he could get $1/250 on LindeX? The buyers have to buy where the sellers sell.

This is the point of Second Life. Second Life is not like other games where a game company makes the game. The whole concept of the game is that two groups of people improve the game. Linden Labs improves on the possibilities in Second Life. Residents take those possibilities and turn them into entertainment for you and me. Is it wrong for a resident to want something in return for the work they did building you the house you want on your land, or the 50 pairs of clothes you want to rotate through. Linden Labs wants people to have access to some of the profits from this game, so that residents will help improve the game without them having to worry about the content. The money going into Lindex helps improve the game.

It is true that there are other people getting money. You have those that farm the money by making accounts, which would be fixed if it wasn't made profitable to make a premium account or a free account. You also have those that buy and sell land. This keeps land at a stable price, so that it has value when you resell it, and it allows Linden Labs to make more money than they would if they just sold plots as people asked for them. Land Sellers make Linden Labs money. You also have those that just won their money, but why should they not be entitled to get their winnings. The whole point of this game is that Residents are the builders, and Linden Labs is the provider. They aren't marketing a game made by Linden Labs for you to enjoy. They are marketing a game made by residents for residents, and a world that you can build yourself.

Is there any reason that the stipend couldn't be purchased from the Lindex using a set portion of the membership fee? That way the stipend would fluctuate with the health of the economy also. Do free accounts even get a stipend? If they do, it should go away. I may be missing a lot of details here, but if LL is printing L$500+ for every account once a week, that is obviously going to cause problems.

I apologize if my ignorance is skewing my view in this case.

Actually Korbin, there's some ignorance in the way SL works, but you're by no means ignorant. Imho, you're pretty much right on the button in your basic analysis of the situation.

Premium members get two basic things for their membership fees: a small piece of land and a weekly L$ allowance.

The problem is that non-paying members also get a small-but-as-a-group-huge weekly stippend. That weekly stippend, accompanied by inefficient L$ sinks, is adding to the glut of L$ currently on the market, causing it to devalue. This causes problems for merchants and land renters, who can't get as much when they sell their L$ and thus are having difficulty meeting their overhead.

There's a big stink about it. LL seems in the "committee" stage of examining the problem at this time. Who knows what will result.

...and what are "L$ sinks"?

I'm just starting to use the forums, so if I'm violating some process by posting questions here or not quoting a previous thread or post, let me know. I'll have to find a forum FAQ. I'm sure there is one buried here someplace.

Korbin:

Guidelines and Reference and Policies.

In regards to SL's economy, well, that's a loaded question. Peruse the current page in this subforum to see what I mean.

There may be some primers in notecard form in-world; Find->Places, search for 'NCI HQ.'

:link: