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FTC Floats Tax-and-Subsidy Plan for Journalism

3 min readBy: Joseph Bishop-Henchman

The Federal Trade Commission put up a trial balloon this week, floating the idea of a tax-and-subsidy structure for newspapers and traditional media (PDF). Specific ideas include:

  • Expanding copyright law and restricting the doctrine of fair comment to benefit legacy publishers
  • Granting antitrust exemptions to allow publishers to collude on pricing to consumers and to business partners
  • Giving news organizations taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. exemptions
  • Subsidizing news organizations by increasing government funding to public broadcasting
  • Establishing an AmeriCorps to pay reporters
  • Giving news companies tax credits for employing journalists
  • Creating a national fund for local news
  • Giving the press an increased postal subsidy

The pay-for has been described by Hit & Run's Nick Gillespie as "a slew of taxes on just about everything related to spectrum, broadband, and consumer electronics." TaxProf summarizes:

Tax on broadcast spectrum. They argue "commercial radio and television broadcasters are given monopoly rights to extremely lucrative spectrum at no charge," and this is a massive public subsidy. They therefore suggest the revenues generated by that spectrum be taxed at a rate of 7%, which should result in a fund of between $3 and $6 billion. In exchange, commercial broadcasters would be relieved of any obligations to engage in "public-interest programming," which the broadcasters claim costs them $10 billion annually.

Tax on consumer electronics. A 5% tax on consumer electronics would generate approximately $4 billion annually.

Spectrum auction tax. They suggest there be a tax on the auction sales prices for commercial communication spectrum, with the proceeds going to the public-media fund.

Advertising taxes. They note a considerable amount of our broadcast spectrum has been turned over to disseminating commercial advertisements, and a 2% sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. on advertising would generate approximately $5 to $6 billion annually. In addition, they suggest that changing the tax write-off of all advertising as a business expense in a single year to a write-off over a 5-year period would generate an additional $2 billion per year.

ISP-cell phone tax. They suggest consumers could pay a small tax on their monthly ISP-cell phone bills to fund content they access on their digital services. A tax of 3% on the monthly fees would generate $6 billion annually. They note, however, this is the least desirable approach because demand for these services is "elastic" and even a slight rise in price could result in people dropping the service.

BuzzMachine's Jeff Jarvis, who helped the FTC with its research and is quoted in the report, is critical:

Murdoch talked about a drumbeat building to bail out newspapers and how that would be a mistake, just as bailing out GM was. The government shouldn’t save companies that make things customers don’t want, he argued. Huffington said there’s no need for government intervention and after her speech (read: testimony), I interviewed her for my upcoming Guardian MediaTalkUSA podcast and when I pointed out that she agreed with Rupert, she pointed out that he was asking for government favors in his threats to try to rewrite fair use. Brill started his talk begging government to stay out.[…]

[T]he commissioner’s title for this “workshop” alone – “How will journalism survive the internet age?” – is prejudicial, a foreshadowing of the results they have already prescribed: it implies saving the legacy players when, as the Knight Foundation’s Eric Newton said at the hearings today, journalism doesn’t need to be saved, it needs to be created. (The reason I’m not there today is that I am teaching my entrepreneurial journalism course. That’s one way to save journalism: build it.) The choice of speakers was itself prejudicial: mostly the old players who played their tiny violins.[…]

If journalistic reporting is a "public good" (non-rivalrous, non-excludable), and the old model of classified-ads-paying-for-reporters doesn't work anymore, what should we do?