Your tax dollars at work: US government regulation of virtual worlds

Reuters (now with their own Second Life Bureau desk!) reports that the US Congress is considering how  virtual economies such as those within Second Life and World of Warcraft interact with US tax code.  According to federal economist Dan Miller:

Right now we’re at the preliminary stages of looking at the issue and
what kind of public policy questions virtual economies raise — taxes,
barter exchanges, property and wealth… You could argue that to a
certain degree the law has fallen (behind) because you can have a
virtual asset and virtual capital gains, but there’s no mechanism by
which you’re taxed on this stuff.

Meanwhile, various legislatures around the country are experimenting with various forms of regulation of the content and distribution of violent console, computer and online games, such as "Bully" and "Grand Theft Auto."

The larger question is, what are the main areas of federal government public policy regulation and enforcement that apply potentially to virtual environments, besides the tax code and violent game content?  Here’s a brief fly-over of the possible federal agencies and bodies that might have a role in the regulation of virtual worlds.

Taxable Income/ Deductible Business Expenses

Taxes and income are the issues getting the most media play right now, for obvious reasons.  As Julian Dibell notes in his book Play Money, anything you earn, from anywhere, through any means, is reportable as income to the IRS.  Conversely, then, you should be able to deduct any expenses related to running your business in virtual space, from internet access costs to sim rental to virtual promotions.  The IRS, as depicted hilariously in the book, is no where near being able to grok this stuff yet.

Violent and Sexually-oriented Media Content
This is potentially the purview of the Federal Communications Commission, in particular its mandate to regulate "obscenity, indecency and profanity" on the public airwaves.  If the scope of the FCC was broadened to include virtual environments as being a form of "public media" then presumably the FCC would have a strong role in policing content available in-world.

Applying the TV metaphor to virtual worlds, one might imagine a "safe harbor" requirement restricting "indecent" or "profane" content from being made available during certain hours of the day, or a "v-chip" requirement enabling parents to restrict their chidren’s access to certain sims.  Contrast that to the current state of Second Life, where I can at 9am teleport to the Amsterdam sim and watch lesbian porn from my desktop.

Child Pornography
Speaking of porn, the FBI’s cybercrime unit might be tasked with investigating any alleged child pornography being made available in-world.  This is complicated by the nature of sexually-oriented "ageplay" in virtual worlds in which no actual minor is involved, but it might appear so to an uninformed observer. 

Virtual Gambling Regulation
As Philip Rosendale has noted, porn and gambling are fringe forms of business that often pioneer the use of various communications technology.  Currently gambling regulation in the United States is a state-level responsibility, with each state governing and taxing gambling on its own terms. (Cornell has a nice summary of the state of US regulation on gambling. )

However with the growth of online gambling websites, the US government may be stepping in to regulate or bar US citizens from engaging in what has largely been an unregulated industry.  The House of Representatives recently passed the "Unlawful Internet Gambling Enforcement Act" (HR 2143) which if enacted would restrict any bank from honoring any payment to an online gambling establishment.  The Second Life official response can be read here. 

Hackers / Cybercrime
Beyond child pornography, there are other forms of cybercrime that might be investigated by federal authorities, from Denial of Service attacks to fraud to intellectual property theft.  So far most of the potentially prosecutable activity has not risen to the level of the FBI becoming involved, as far as I can tell.  But Philip Rosendale has said that Linden Labs will turn over the names of alleged DOS attackers over to the FBI.

This is not meant to be an exhaustive examination of all the ways the federal government could conceivable have a role within virtual worlds.  But this is meant to help broaden the scope of the discussion about the areas where government potentially has a role to play. 

What is interesting to me is that virtual worlds cause people to re-question what the point of government is.  Is it an intrusive "outside" force that only comes in to collect taxes? Or is it means of ensuring that certain basic collective goods are available to all, such as security, liberty and justice?  And when you are inhabiting a world that is owned and largely governed by a corporate entity, where does the company’s role end and the government’s begin?  How do the various jurisdiction issues between state, federal, transnational and international law get sorted?

Much of this is being decided in real-time in our courts and legislatures.  Whether this ends up enhancing or ruining people’s virtual lives remains to be seen.