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Taxing sex to save California from its budget deficit

This story was reported for San Diego News Network on June 8, 2009.

See original copy of story.

Single, childless, and with an average weekly income of $2,500, one would assume “Samantha” pays a hefty income tax. Not so. The 23-year-old prostitute hasn’t paid taxes in more than a year – and now she’s planning to expand her clientele. If prostitution were legal in California, though, Samantha says she wouldn’t mind paying taxes.

“I think it’s a great idea,” said Samantha, who asked to be identified by first name only. “We should really look at expanding the laws.”

Considering the state is in a financial crisis and is under pressure to pass a budget by June 15, should state legislators consider legalizing prostitution?

“Billions of dollars is generated from prostitution in this country every year,” said Kenneth Green, owner of The Chicken Ranch brothel, located in Nevada, where it is legal. “But, because it isn’t legal, it all goes underground. Well, what happens now? Now, we have the women or men involved utilizing public services and/or dealing with drugs and other criminal activities. So, it’s a double-whammy. If we legalize it and regulate it, it would be different.”

Prostitution is only legal in Nevada and Rhode Island, but the laws surrounding it are cloudy. In Nevada, brothels are legal in counties with a population less than 400,000. At least eight of the 16 counties have brothels. Prostitutes are required to register as independent contractors, and they split their profits 50/50 with the brothels. In Rhode Island, prostitution is legal by default; there isn’t a state law defining what it is. However, the state has implemented laws making brothels illegal, which means it doesn’t tax the sex industry.

Outside of the U.S., prostitution is legal in Germany, where the taxing guidelines are clear. The European country requires prostitutes to pay a set amount of taxes in advance. In addition, customers are required to pay a “value added tax,” a form of sales tax pre-determined by the provider and the client. In the Netherlands, sex businesses are found in areas designated “Red Light Districts.” Prostitutes are required to pay taxes and can even receive tax-deductions for condoms and other supplies.

If Samantha’s estimates are accurate, she makes about $120,000 a year. In March, SDNN interviewed Shay, a sex worker who said, during a slow week she makes about $2,250 – or $108,000 annually. And Shay is eligible for tax breaks as a Santa Monica College student.

The online bulletin board Craigslist.org is making money off the sex industry – but is paying taxes too. The private company closed its “Erotic Services” section May 5, after local governments accused the site of promoting prostitution. On May 15, the company implemented an “Adult Services” section that charges $10 per posting. Monday at 10 a.m., the company had more than 50 advertisements for adult services – ranging from erotic massage to escort work – in San Diego alone. Craigslist’s press office said it wouldn’t release the amount of revenue the section generates. It will, however, donate the money from erotic services to a not-yet-announced nonprofit.

With Gov. Arnold Schwarzenegger and the state considering severe cuts – including cutting health care for more than a million children, cash grants for 77,000 college students, 5 percent of salaries for all state workers and seven days from the school year – some are wondering if the government is being creative enough with its budget.

San Diego State University economics professor Shoshana Grossbard said legalizing prostitution might help our cash-strapped state.

“It will shift some activity from the informal to the formal sector, thus leading to a higher observed state production and higher taxes to the extent that prostitutes don’t currently pay income taxes and sales taxes,” Grossbard said. “This will be good in contributing to a reduction in the state deficit.”

Opponents of legalizing and taxing prostitution, however, say the social cost of the profession is too high. Post-traumatic stress disorder (PTSD) is prominent among prostitutes, according to reports by long-time activist Melissa Farley. Farley, known for her fight against prostitution, conducted a study of 854 sex workers in nine countries and found that 68 percent had PTSD.

“This is an extremely high prevalence of PTSD,” Farley wrote in her report, “Renting an Organ for Ten Minutes.” “[The report shows] that prostitution causes great psychological harm to those in it. As we analyzed our data, we investigated factors that might indicate what exactly it was about prostitution that was causing such high rates of PTSD.”

Statistics by the U.S. Department of Justice show that between Jan. 1, 2007 and Sept. 30, 2008, there were 1,229 alleged incidents of human trafficking in the U.S., and 83 percent of those cases were sex trafficking incidents. Of the 1,018 alleged sex trafficking incidents reported, 391 involved allegations of child sex trafficking and the other 627 incidents involved allegations of forced prostitution or other sex trafficking crimes.

Norma Ramos, the executive director of the Coalition Against Trafficking in Women, wrote in The New York Times last month that countries that have legalized prostitution have “become magnets for human trafficking and other crimes.”

“You don’t tax a human rights abuse, you abolish it,” she wrote, adding that prostitution is an injustice and is not the oldest profession; it’s the “oldest oppression.”

‘It’s safer having sex with a girl at the brothel than a girl from your church’

County governments profit off the fees for brothels to obtain business licenses and liquor licenses, and other quarterly fees. Joe Conforte, owner of the Mustang Brothel, has twice offered the Nevada legislature a “bedroom tax,” and the state rejected it. According to an article in the Las Vegas Sun, Conforte said it was his “patriotic duty” to pay more taxes.

The Chicken’s Ranch’s land value alone was estimated at $6.92 million in 2006, but, because it’s a private business, Green declined to say the total monthly revenue the women generate, and the amount the Ranch pays in taxes. He did say, however, the sex workers charge between $400 and $2,000 per service. He also said the monthly revenue is a “substantial amount” and that he thinks brothels contribute heavily to the financial health of the county and state.

If it were up to Green, he said he’d legalize the sex industry nationwide, and put strict regulations on it.

Green recently founded Regulated Management, an organization that aims to address illegal prostitution and encourage awareness about the benefits of legalizing it.

He said Nevada law requires each prostitute to have a medical check-up every week. He also said the legal brothels have security and are clean. Moreover, Chicken Ranch public relations representative Bob Fisher said every prostitute involved in the brothel takes classes about the different types of sexual diseases, and screens clients before participating in any sexual activity. Each client is also evaluated so managers know the women will be safe.

“You’re safer having sex with a girl in the brothel than a girl you meet in the church,” Fisher said. “My brother got herpes once from a girl he met in church. Brothels are squeaky clean.”

Capt. Tim Curran of the San Diego County sheriff’s department, begs to differ, and says prostitution is a profession filled with victims.

“I don’t think it should be legalized,” Curran said. “We don’t want that type of activity; especially when you look at what else it brings to the region – drugs, violence. [It] causes [an] increase [in] call[s] for public services.”

Statistics show that 779 prostitutes were arrested in San Diego County in 2008.

Lt. Mike Hook with the El Cajon Police Department also opposed legalizing prostitution.

“There’s always going to be an element where there’s street walkers working for abusive pimps,” he said in a March interview. “At least 50 percent admit to having a drug problem and are not wanting to be a prostitute.”

‘Politicians won’t even talk about it’

Despite increased calls for regulations and scrutiny on Craigslist ads, elected officials have not addressed legalizing or regulating prostitution, Green said. The Ranch owner said if prostitution was legal, and taxed, state and local governments and taxpayers would reap the benefits.

Because prostitution is illegal, he said, sex workers are forced to engage in criminal activity, which results in strains on police departments, the legal system and social service organizations.

Green said he went to several senate committees in Nevada, hoping to address regulations on the sex industry, but only one senator heard him out.

“Politicians need to stop digressing from the issue and look at it objectively,” Green said. “Prostitution is not the problem. Women have a right to choose it, men have a right to engage in it and because it’s illegal, both the men and women are criminals.”

The offices of State Assemblymembers Joel Anderson (R-El Cajon) and Mary Salas (D-Chula Vista) have not yet responded to requests for interviews. Norma Ramos of the Coalition Against Trafficking Women could not be reached.

Hoa Quach is the political editor for the San Diego News Network.