I want to bring to everyone’s attention an important new white paper by Dr. Robert Graboyes, a colleague of mine at the Mercatus Center at George Mason University who specializes in the economics of health care. His new 67-page study, Fortress and Frontier in American Health Care, seeks to move away from the tired old dichotomies that drive health care policy discussions: Left versus Right, Democrat versus Republican, federal versus state, and public versus private, and so on. Instead, Graboyes seeks to reframe the debate over the future of health care innovation in terms of “Fortress versus Frontier” and to highlight what lessons we can learn from the Internet and the Information Revolution when considering health care policy.

What does Graboyes mean by “Fortress and Frontier”? Here’s how he explains this conflict of visions:

The Fortress is an institutional environment that aims to obviate risk and protect established producers (insiders) against competition from newcomers (outsiders). The Frontier, in contrast, tolerates risk and allows outsiders to compete against established insiders. . . .  The Fortress-Frontier divide does not correspond neatly with the more familiar partisan or ideological divides. Framing health care policy issues in this way opens the door for a more productive national health care discussion and for unconventional policy alliances. (p. 4)

He elaborates in more detail later in the paper:

the Frontier encourages creative destruction and disruptive innovation. Undreamed-of products arise and old, revered ones vanish. New production processes sweep away old ones. This is a place where unknown innovators in garages destroy titans of industry. The Frontier celebrates and rewards risk, and there is a brutal egalitarianism to the creative process. In contrast, the Fortress discourages creative destruction and disruptive innovation. Insiders are protected from competition by government or by private organizations (such as insurers and medical societies) acting in quasigovernmental fashion. In the Fortress, insiders preserve the existing order. Innovation comes from well-established, credentialed insiders who, it is presumed, have the wisdom and motives and competence to identify opportunities for innovation.

In framing the debate in this fashion, Graboyes hopes that we will start paying more attention to the supply side of health care policy debates:

The debate over coverage (and over related issues concerning how health care providers are paid) has focused attention almost exclusively on the demand side of health care markets—who pays how much to whom for which currently offered services. The debate underplays questions of supply—how innovation can alter the very nature of the health care delivery system. (p. 3-4)

This is where Graboyes brings the Internet and information technology into the story to illustrate a powerful point: We could unlock many important life-enriching and potentially life-saving innovations by embracing the same vision we applied to the Internet and IT sectors. Graboyes is kind enough to cite my work on permissionless innovation and the importance of not letting public policy be dictated by excessive fear of worst-case scenarios regarding new technological innovations. As I noted in my book on the topic, “living in constant fear of worst-case scenarios—and premising public policy upon them—means that best-case scenarios will never come about. When public policy is shaped by precautionary principle reasoning, it poses a serious threat to technological progress, economic entrepreneurialism, social adaptation, and long-run prosperity.”

Had fear of potential worst-case outcomes driven policy for the Net, we might have never seen many of the life-enriching innovations that we enjoy today, as Graboyes explains eloquently in this passage:

Knowing what we know today, it would not be hard to persuade a cautious observer in 1989 to radically slow the pace of IT innovation. IT arguably poses personal risks as grave as those that health care poses. Cell phones have been essential components of improvised explosive devices in war zones. The 9/11 atrocities would have been difficult or impossible to carry out without cell phones. Thieves have used the Internet to steal. Stalkers have used the Internet to terrify their prey. Child predators find their victims on the web. People have been murdered by strangers they met in chatrooms. IT has allowed individuals and governments to violate others’ privacy in countless ways. Drug dealers and terrorist networks organize their efforts via cell phone and Internet. The Internet has greatly reduced the cost of destroying another’s reputation, and news accounts tell of suicides following cyberbullying. Our laws demand terribly high standards of safety and efficacy for drugs. We require no such standards for computers, cell phones, and software, but given the nefarious uses to which they are sometimes put, decades ago one could easily have argued for doing so. Had we done so, we would now be living in a much poorer, less interesting world—and perhaps one with even greater risks to life and limb than we have now. No online predators or improvised explosive devices, but also no OnStar to save you after an automobile crash or smartphone to alert police to your life-threatening situation and geographic location. (p. 41)

In other words–and this is another lesson I stress at length in my work–precautionary policies create profound trade-offs that are not always well understood upon enactment of new laws or regulations. As I noted in my book, “When commercial uses of an important resource or technology are arbitrarily prohibited or curtailed, the opportunity costs of such exclusion may not always be immediately evident. Nonetheless, those ‘unseen’ effects are very real and have profound consequences for individuals, the economy, and society.”

What Graboyes does so well in his new paper is prove that these trade-offs are already at work in the American health care system and that we had better get serious about acknowledging them before real damage is done. And what makes Fortress and Frontier such an enjoyable read is that Graboyes is a gifted story-teller who explains in clear terms how expanded health care innovation opportunities could improve the lives of real people. It’s not just abstract, textbook talk. We hear stories of real-world innovators and the patients who need their inventions. For example, Graboyes tells of “an unheralded doctor who pioneered stem-cell therapy in a small-town hospital, a carpenter and puppet-maker who invented functional prosthetic hands costing one-thousandth the price of professionally made devices (aided by an evolutionary biologist who started a worldwide consortium of amateur prosthetists), and college students who devised a low-cost treatment for clubfoot.” (p. 4) And much, much more.

“The most important thing to understand about disruptive innovation is that it often comes (perhaps usually comes) from strange and unexpected places,” Graboyes notes. (p. 20) “[A] shift from Fortress to Frontier would benefit the health and finances of Americans,” he argues, and “the task begins by easing limits on the supply of health care services, thereby clearing the way for innovators to take health care in directions we cannot yet imagine.” (p. 39)

Importantly, Graboyes also offers another reason why America should embrace the “frontier” spirit: Our global competitive advantage in this space is at risk if we don’t:

Moving health care from the Fortress to the Frontier may be more a matter of necessity than of choice. We are entering a period of rapid technological advances that will radically alter health care. Many of these advances require only modest capital and labor inputs that governments cannot easily control or prohibit. If US law obstructs these technologies here, it will be feasible for Americans to obtain them by Internet, by mail, or by travel. (p. 41-2)

He highlights several areas in which this debate will play out going forward including (and notice the intersection with the modern digital technologies and tech policy debates we often discuss here): genomic knowledge and personalized medicine, 3-D printing, artificial intelligence, information sharing via social media, wearable technology, and telemedicine.

To make sure that America can capitalize on the same innovative spirit that gave us the Information Revolution, Graboyes concludes his study with a laundry list of needed policy reforms. These include:

• reform of FDA drug & device approval process to expedite reviews.
• ensure that Americans have a “right to know” about themselves and their health (i.e., that individuals have a right to possess their own genetic information and to receive information about how to interpret the results.)
• abolish state certificate-of-need laws, which unnecessarily “require that hospital developers obtain government permission before building a new facility, or expanding an existing one, or even adding a specific piece of medical equipment.”
• reform state-based licensing laws, which “put barriers in the way of doctors moving from other states” and create physician shortages. Also need to reform state laws to allow nurse practitioners, optometrists, and others to practice independently of physicians.
• reform tort law by capping noneconomic damages, instituting a “loser pays” rule to discourage frivolous lawsuits, establishing safe harbors for vaccine developers, and more.
• revising tax laws to make sure medical devices are not hit with discriminatory tax burdens that discourage innovation, and then also revising other taxes that skew incentives in the health insurance marketplace.

Graboyes itemizes dozens of other potential reforms to give policymakers a smorgasbord of options from which to choose. It is unlikely that all the reforms he lists will be adopted, but even if policymakers would just pick a few of those proposed action items, it could provide a real boost to medical innovation in the short term. Importantly, most of these proposed reforms could be implemented without stirring up contentious debate over the future of the Affordable Care Act (ACA).

Needless to say, I highly recommend Fortress and Frontier and I very much hope that the vision that Graboyes articulates in it comes to influence public thinking and future policymaking in the health care arena. In a follow-up post, I will also discuss how Fortress versus Frontier provides us with another “innovation paradigm” that can help us frame future innovation policy debates in many other contexts.

Heritage Foundation released a new study this week arguing that “Congress Should Not Authorize States to Expand Collection of Taxes on Internet and Mail Order Sales.” It’s a good contribution to the ongoing debate over Internet tax policy. In the paper, David S. Addington, the Vice President for Domestic and Economic Policy at Heritage, takes a close look at the constitutional considerations in play in this debate. Specifically, he examines the wisdom of S. 1832, “The Marketplace Fairness Act.” Addington argues that, “enactment of S. 1832 would discourage free market competition” and raise a host of other issues:

The Constitution of the United States has set the legal baseline—the level playing field—around which the American free-market economy has built itself. The Constitution, as reflected in the Quill decision, is the source of the present arrangement regarding collection of state sales and use taxes by remote sellers. Ever since the Supreme Court decided Quill in 1992, American businesses have made millions of business decisions in the competitive marketplace based in part on settled expectations regarding state taxation affecting their sales transactions. The states and businesses advocating S. 1832 seek to change the current, constitutionally prescribed playing field. They seek to use governmental power to intervene in the economy to help in-state, store-based businesses by imposing a new tax-collection burden on out-of-state competitors who sell over the Internet, through mail order catalogs, or by telephone. Free-market principles generally discourage such government intervention in the economy to pick winners and losers based on legislative policy preferences.

Veronique de Rugy and I raised similar concerns in both a recent Mercatus white paper (“The Internet, Sales Taxes, and Tax Competition “) and an earlier 2003 Cato white paper, (“The Internet Tax Solution: Tax Competition, Not Tax Collusion”). We argued that there are better ways to achieve “tax fairness” without sacrificing tax competition or opening the doors to unjust, unconstitutional, and burdensome state-based taxation of interstate sales. Specifically, we point out that an “origin-based” sourcing rule would be the cleanest, most pro-constitutional, and pro-competitive alternative. I also discussed these issues at a recent Cato event. [Video follows.]

On Monday it was my great pleasure to participate in a Cato Institute briefing on Capitol Hill about “Internet Taxation: Should States Be Allowed to Tax outside Their Borders?” Also speaking was my old friend Dan Mitchell, a senior fellow with Cato. From the event description: “State officials have spent the last 15 years attempting to devise a regime so they can force out-of-state vendors to collect sales taxes, but the Supreme Court has ruled that such a cartel is not permissible without congressional approval. Congress is currently considering the Main Street Fairness Act, a bill that would authorize a multistate tax compact and force many Internet retailers to collect sales taxes for the first time. Is this sensible? Are there alternative ways to address tax “fairness” concerns in this context?”

Watch the video for our answers. Also, here’s the big Cato paper that Veronique de Rugy and I penned for Cato on this back in 2003 and here’s a shorter recent piece we did for Mercatus.

Reps. Jackie Speier (D-Calif.) and Steve Womack (R-Ark.) have introduced “The Marketplace Equity Act,” which would open the floodgates to anything-goes State-based taxation of the Internet and interstate commerce. The bill essentially sacrifices constitutional fairness at the alter of “tax fairness.” Building on concerns raised by state and local officials as well as “bricks-and-mortar” retailers, Speier and Womack claim that, as “a matter of states’ rights” and “leveling the playing field,” Congress should bless state efforts to impose sales tax collection obligation on interstate (“remote”) companies.The measure would allow States to do so using one of three rate structures: (1) a single blended state/local rate; (2) a single maximum State rate; or (3) the actual local jurisdiction destination rate + the State rate (so long as the State “make(s) available adequate software to remote sellers that substantially eases the burden of collecting at multiple rates within the State.”)

This builds on a long-standing effort by some States to devise a multistate sales tax compact to collude and impose taxes on interstate transactions. In the Senate, Sen. Dick Durbin (D-IL) has floated legislation (“The Main Street Fairness Act”) that would bless such a state-based de facto national sales tax regime for the Internet.

There is a better way to achieve fairness without sacrificing tax competition or opening the doors to unjust, unconstitutional, and burdensome state-based taxation of interstate sales. In a new Mercatus Center essay,”The Internet, Sales Taxes, and Tax Competition,” Veronique de Rugy and I argue that:

Apart from getting chronic state overspending under control, a better solution to the states’ fiscal problems than a tax cartel that imposes burdensome tax collection obligations on outof-state vendors would be tax competition.  Congress should adopt an “origin-based” sourcing rule for any states seeking to impose sales tax collection obligations on interstate vendors. This rule would be in line with Constitutional protections for interstate commerce, allow for the continued growth of the digital economy, and ensure excessive, inefficient taxes do not burden companies and consumers.

Vero and I have detailed this alternative plan in much greater detail in this 2003 Cato white paper, “The Internet Tax Solution: Tax Competition, Not Tax Collusion.” As we explain in our new paper:

In this system, states would tax all sales inside their borders equally, regardless of the buyer’s residence or the ultimate location of consumption. Under that model, all sales would be “sourced” to the seller’s principal place of business and taxed accordingly. This is, after all, how sales taxes have traditionally worked. A Washington, DC, resident who buys a television in Virginia, for instance, is taxed at the origin of sale in Virginia regardless of whether he brings the television back into the District. Each day in America, there are millions of cross-border transactions that are taxed only at the origin of the sale; no questions are asked about where the buyer will consume the good. Policy makers should extend the same principle to crossborder sales involving mail order and the Internet. Under this approach, Internet shoppers would pay the sales tax of the state where the online retailer is based.

An origin-based sourcing rule has several advantages over the destination-based system States favor.

1. It would eliminate constitutional concerns because only companies within a state or local government’s borders would be taxed.
2. An origin-based system would do away with the need for prohibitively complex multistate collection arrangements because states would tax transactions at the source, not at the final point of consumption.
3. An origin-based system also would protect buyers’ privacy rights, eliminating the need to collect any special or unique information about a buyer and to use third-party tax collectors to gather such information.
4. It would also preserve local jurisdictional tax authority whereas a harmonization proposal would create a de facto national sales tax system that would exclude local governments.
5. Finally, because it is more politically and constitutionally feasible, an origin tax may actually maximize the amount of tax collected for states by making compliance easier and incorporating currently untaxed activities.

In closing, it is important to address the misguided claim at the heart of the Speier-Womack bill that this is a “states’ rights” issue. Let’s be clear what real federalism is all about. Federalism is not about “states’ rights.” States have powers and responsibilities, and under the Constitution — at least the proper interpretation of it — they have wide-ranging flexibility to purse different governance approaches. But that power is not unlimited. America abandoned its first constitution, The Articles of Confedertion, after just 14 years in part because untrammeled state authority was discouraging interstate trade and commerce. In their wisdom, the authors or our present Constitution made sure to include Article 1, Sec. 8, Clause 3 — the so-called “Commerce Clause” — which created and protected what might best be thought of as the world’s first free trade zone – The United States of America. It remains one of the greatest achievements in constitutional and commercial history.

Thus, properly understood, federalism is about a healthy tension among competing units of government. Each has a different role and set of responsibilities, and this tension bolsters the checks and balances at the heart of our constitutional republic. [I outline all this in far more detail my 1999 book, The Delicate Balance: Federalism, Interstate Commerce and Economic Freedom in the Technological Age.]

In the context of Internet tax policy, this means that the tax power of the States can be legitimately constrained by the federal government to ensure that the interstate market is not unduly burdened with unjust levies. States certainly retain the power to impose whatever levies they wish on those actors who have a substantial physical presence in their geographic confines. That is, they can tax their own exports. Taxing imports from another State, however, is an entirely different matter, and one the necessarily requires some degree of federal oversight to ensure America’s free trade zone is preserved and protected.

An origin-based sourcing rule accomplishes that goal while also leaving States the discretion to impose taxes on their own exports if they so choose. The fact that this system would lead to heated tax competition among the States is a feature, not a bug.

The debate over the imposition of sales tax collection obligations on interstate vendors is heating up again at the federal level with the introduction of S. 1452, “The Main Street Fairness Act.” [pdf]  The measure would give congressional blessing to a multistate compact that would let states impose sales taxes on interstate commerce, something usually blocked by the Commerce Clause of the U.S. Constitution.  Senator Dick Durbin (D-IL) introduced the bill in the Senate along with Tim Johnson (D-SD) and Jack Reed (D-RI).  The measure is being sponsored in the House of Representatives by John Conyers (D-MI) and Peter Welch (D-VT). At this time, there are no Republican co-sponsors even though Sen. Mike Enzi was rumored to be a considered co-sponsoring the measure before introduction.

Without any Republicans on board the effort, the measure may not advance very far in Congress. Nonetheless, to the extent the measure gets any traction, it is worth itemizing a few of the problems with this approach. My Mercatus Center colleague Veronique de Rugy and I have done some work on this issue together in the past and we are planning a short new paper on the topic. It will build on this lengthy Cato Institute paper we authored together in 2003, “The Internet Tax Solution: Tax Competition, Not Tax Collusion.” The key principle we set forth was this: “Congress must.. take an affirmative stand against efforts by state and local governments to create a collusive multistate tax compact to tax interstate sales.” “It would be wrong,” we argued, “for members of Congress to abdicate their responsibility to safeguard the national marketplace by giving the states carte blanche to tax interstate commercial activities through a tax compact. The guiding ethic of this debate must remain tax competition, not tax collusion.”

Proponents of simply extending current sales tax collection obligations to interstate sales will claim that the so-called “Streamlined Sales and Use Tax Agreement” (SSTUA) they want Congress to bless has solved the compliance cost and complexity problem associated with taxing “remote” interstate sales. Yet, as I pointed out in my recent Forbes essay, “The Internet Taxman Cometh,” this 200-page “simplification” effort remains a Swiss cheese tax system, however, riddled with loopholes and complexities that could burden vendors, especially mom-and-pop operators. America’s estimated 7,400 local jurisdictions still have many different definitions and exemptions that complicate the sales tax code. For example, is a cookie a “candy,” (which is taxed in most jurisdictions) or a “baked good,” (which is typically tax-exempt)? Thus, forcing online vendors to collect local taxes would create significant burdens on interstate commerce.

This is not to say there aren’t some legitimate tax “fairness” arguments in play here. It really is unfair that “Main Street” vendors are burdened with significant tax collection responsibilities while others are not. But “fairness” cuts many ways. It’s also unfair and unconstitutional to require out-of-state vendors to collect sales taxes on behalf of a jurisdiction where they have no physical presence. After all, at least in theory, those who are taxed should expect to receive some benefit for it. Interstate vendors receive no benefit but bear all the cost.

To the extent we want to “level the playing field,” therefore, one approach is to cut or eliminate sales taxes on in-state vendors. Of course, that’s a tough pill for many states and localities to swallow. If they got their profligate spending habits under control, however, that might be easier.

Another alternative would be the creation of a national Internet sales tax that would avoid the complexity problem by imposing a single rate and set of definitions on all vendors. But that just opens the door to a new federal tax base, which would grow to be burdensome in other ways at a time when American consumers and companies are already over-taxed. I doubt the idea would get much traction in Congress, anyway.

Perhaps the best alternative would be to switch the sourcing methodology for state sales tax collection obligations from destination-based to “origin-based.”  Stated differently, the rule would be “you can tax your own exports, not the imports from other states.” Here’s how Veronique and I summarized an origin-based solution in our old Cato paper:

under an origin-based sourcing rule—also referred to as a “seller state,” “vendor-state,” or “source-based” rule by some scholars—all interstate sales through all channels (traditional stores or cyber-retailers) would be taxed at the point of sale (meaning the company’s “principal place of business”) instead of at the point of destination, if the state or locality chooses to impose a tax. All goods within a given state or locality would be taxed at the locally applicable rate no matter how they were purchased and no matter where they were consumed.  This option would take care of most of the problems posed by the destination-based methodology that is favored by most state and local policymakers today.

Specifically, an origin-based sourcing rule would have the following advantages:

• Minimize the burden on sellers by requiring sellers to know and abide by the tax rates and regulations within their principal place of business instead of the rates and definitions of thousands of different taxing jurisdiction.
• Ensure tax parity between Main Street vendors and interstate sellers.
• Do away with the need for a multistate collection arrangement such as the SSTUA by eliminating any need to trace interstate transactions to the final point of consumption.
• Remove nexus uncertainties and constitutional concerns, because only companies within a state or local government’s borders would be taxed.
• Largely remove any need for continued reliance on the use tax because all transactions would henceforth be sourced to the origin of sale and collected immediately by the vendor at that point.
• Respect buyers’ privacy rights by eliminating the need to collect any special or unique information about a buyer, and  by not using third-party tax collectors to gather information about buyers.
• Respect federalism principles and enhance jurisdictional tax competition  by permitting each state to determine its  own tax policies and encouraging healthy state-by-state tax rivalry.
• Preserve local jurisdictional tax authority where a harmonization proposal like the SSTUA plans would create a de facto national sales tax system and run roughshod over local governments.
• Because it is more politically / constitutionally feasible it may maximize the amount of tax collected for states by making compliance easier and incorporating activities that are currently untaxed.

Please see the old Cato paper for more details and answers to potential objections, but I hope it’s clear why an “origin-based” solution offers a sensible way to break the current logjam and achieve tax “fairness” in the process.

Some states officials will object to the vigorous tax competition spawned by an origin-based sourcing rule. But that’s a feature, not a bug! Tax competition is good for consumers and the continued vitality of American federalism. A multistate tax compact, by contrast, would encourage tax collusion and let states too easily raise rates on interstate sales.

Moreover, I think it bears repeating that state officials have been at this for 15 years and still not found a way to truly simplify their sales taxes and get around constitutional limitations on the taxation of interstate activity. An origin-based system, therefore, may offer them the only way for them to finally tax the Internet and interstate sales.  I’d prefer they scale back their taxing ways, of course, but to the extent they insist on pushing out the boundaries of their tax authority, an origin-based solution — not the “Main Street Tax Fairness Act” — is the only sensible, constitutional way for them to do so.

As we’ve noted here before, state and local politicians just love wireless taxes. They are going up, up, up. Dan Rothschild outlined this disturbing trend in his recent Mercatus Center paper making “The Case Against Taxing Cell Phone Subscribers,” and I discussed it in my recent Forbes essay lambasting the “Talking Tax.”  Another new study by Glenn Woroch of the Georgetown University School of Business notes how “The ‘Wireless Tax Premium’ Harms American Consumers and Squanders the Potential of the Mobile Economy.” Woroch estimates that “the American consumer forgoes over $15 billion in surplus annually compared to when cell phones receive the same tax treatment  as other goods and service.” Read the entire study but I want to draw everyone’s attention to this chart that appears on page 7 of the report comparing state and local wireless taxes burdens to beer taxes.  It really makes you realize just how drunk on wireless taxes are local lawmakers have become! [Click to enlarge. Red bar = wireless taxes.]

My latest Forbes column notes how “Taxes On Talking Are On the Rise Across the U.S.” with levies on mobile phones and devices skyrocketing.  I build my argument around data and arguments found in Dan Rothschild’s excellent recent Mercatus Center paper, which makes “The Case Against Taxing Cell Phone Subscribers,” as well as an important recent study by Scott Mackey, an economist and partner at KSE Partners LLP, which documents the growing burden of these wireless taxes and fees.

“Wireless users now face a combined federal, state, and local tax and fee burden of 16.3%, a rate two times higher than the average retail sales tax rate and the highest wireless rate since 2005,” Mackey finds. Mobile tax rates range from a high of 23.7% in Nebraska to a low of 6.9% in Oregon.  48 states have an average combined wireless tax rate above 11%.  These burdensome taxes on talking just don’t make any sense, argues Rothschild. “There is no economic justification for these high tax rates: reducing cell phone ownership is not a public policy goal, cell phone use by one customer does not affect other customers or other people, and these taxes fall disproportionately on lower-income households.”

You can read my entire essay here, but also make sure to re-read Dan Rothschild’s guest post here at the TLF on the issue. It’s much better than my own treatment.  For me, the key point is this: If the primary policy goal in this arena is to build out a first-class communications and data infrastructure and make sure all Americans have access to it, discriminatory taxes on wireless services and networks are highly counter-productive. Policymakers should hang up on the Talking Tax.

[The following essay is a guest post from Dan Rothschild, Managing Director of the State and Local Policy Project at the Mercatus Center at George Mason University.]

As cell phone ownership has tripled in the United States over the last decade, policymakers have increasingly seen mobile devices as a cash cow. In some states, consumers now pay as much as a quarter of their cell phone bills in taxes. And while state revenues are beginning to tick back up from their low point during the recession, Medicaid costs are fast on their tails. So it’s likely that over the coming years, states will be looking to find taxes to hike or new taxes to create — all without calling them tax hikes, of course.

Policy makers may be tempted to hike taxes on cell phones, or to create (or “equalize”) taxes on untaxed (or “under taxed”) parts of wireless telephony, such as cell phone data plans or e-readers with cellular connections. As I argue in a recent issue of Mercatus on Policy, this is a bad idea for a number of reasons.

First, it’s bad economics. Having special taxes on cell phone violates the well-established principle of tax neutrality, which holds that taxes should treat all economic activities similarly. The purpose of taxes is to raise funds for necessary government services; when taxes treat different activities unequally, it distorts consumer behavior. Empirical evidence suggests that, at the margin, consumer spending on wireless service is elastic. This makes it a particularly poor choice for excise taxation.

There are two economic justifications for a tax that singles out a particular good or service for a higher tax: if it’s something that policymakers deem “sinful” (a so-called “sin tax”), or if it causes negative externalities that the tax corrects (a Pigouvian tax). In both of these cases, policymakers enact these taxes explicitly to discourage the use of the object of the tax; think cigarettes and alcohol. Neither of these rationales apply to cell phones, and (hopefully) no policymaker believes it’s a worthy policy to reduce consumer access to this technology. Nobody seriously argues that cell phones are sinful, nor that cell phones create net negative externalities.

Second, it runs counter to a number of other policy goals. On the national level, politicians are tripping over themselves to extoll the virtues of broadband internet access and its almost magical effects on everything from health outcomes to urban entrepreneurship. But taxing wireless service, which is frequently bundled with wireless broadband, runs counter to that goal (as would any attempts to “equalize” taxes between the voice and data sections of a bill by applying voice tariffs to data services). Similarly, the FCC’s universal service fund is meant to, inter alia, support telephone access in low-income and rural households. The most efficient way to increase take-up of telephony in these households is to lower the price rather than relying on notoriously inefficient subsidies.

Third, it’s a regressive tax. In all likelihood, cell phones are taxed at a higher rate because not so long ago they were seen as toys of the wealthy. This is obviously no longer the case. The marginal consumers today are largely lower-income, and high taxes keep them from adopting technologies.

On the federal level, the Wireless Tax Fairness Act would prohibit states and localities from “imposing a new discriminatory tax on cell phone services, providers, or property.” This is probably a step in the right direction, though it still leaves (from my reading) loopholes for states. For instance, states could argue that they are not imposing a new tax if they applied the same taxes on wireless voice products to wireless data products. This could allow them to easily slap monthly fees on Kindles, iPads, and other devices that use cellular networks. In many ways, this would be more pernicious than raising taxes on voice products.

The bottom line is that taxes on cell phones are inefficient, inequitable, and run counter to other public policies. They likely cost more in lost consumer welfare than they collect in revenues. There’s no reason for them, and states looking to improve their tax structure could do well by eliminating them altogether.

Read the whole thing here.

I was pleased to see columnists George Will of The Washington Post and Jeff Jacoby of The Boston Globe take on the Internet sales tax issue in two smart recent essays. Will’s Post column (“Working Up a Tax Storm in Illinois“) and Jacoby’s piece,”There’s No Fairness in Taxing E-Sales,” are both worth a read. They are very much in line with my recent Forbes column on the issue (“The Internet Tax Man Cometh,”) as well as this recent oped by CEI’s Jessica Melugin, which Ryan Radia discussed here in his recent essay “A Smarter Way to Tax Internet Sales.”

I was particularly pleased to see both Will and Jacoby take on bogus federalism arguments in favor of allowing States to form a multistate tax cartel to collect out-of-state sales taxes.  Senators Dick Durbin (D-IL) and Mike Enzi (R-WY) will soon introduce the “Main Street Fairness Act,” which would force all retailers to collect sales tax for states who join a formal compact. It’s a novel—and regrettable—ploy to get around constitutional hurdles to taxing out-of-state vendors. Sadly, it is gaining support in some circles based on twisted theories of what federalism is all about. Real federalism is about a tension between various levels of government and competition among the States, not a cozy tax cartel.

Will rightly notes that “Federalism — which serves the ability of businesses to move to greener pastures — puts state and local politicians under pressure, but that is where they should be, lest they treat businesses as hostages that can be abused.” And Jacoby argues that an “origin-based” sales tax sourcing rule is the more sensible solution to leveling the tax playing field:

The current system is far fairer than the one [Senator] Durbin wants. Bricks-and-mortar merchants charge sales taxes based on their physical location. The same rule applies to online merchants. A Pennsylvania tobacco shop doesn’t collect Ohio sales taxes whenever it sells a humidor to a visitor from Ohio. Amazon shouldn’t have to, either.

Jacoby also addresses the “tax fairness” argument as follows:

All other things being equal, consumers no doubt prefer a tax-free shopping experience. But all other things are rarely equal. E-retailers (or mail-order catalogs) may have a price advantage, but well-run “Main Street’’ businesses have competitive advantages of their own. They attract customers with eye-catching window displays. They play up local ties and neighborhood loyalty. They give shoppers the chance to see, feel, or try on items before buying them. They enable the serendipitous joys of browsing. They don’t charge for shipping. And they offer potential customers a degree of personal service and warmth that no website can match.

And Will says:

[bricks and mortar] stores have the competitive advantage of local loyalties and customers being able to handle merchandise.Besides, Main Street stores pay sales taxes to support local police, fire and rescue, sewage, schools and other services. If Amazon’s Seattle headquarters catches fire, will Champaign, Ill., firefighters extinguish it?

Anyway, read both columns and stay tuned: this fight is about to get hot once again.

And your privacy doesn’t matter one whit.

PFF today released the fifth installment in our ongoing series on “The Wrong Way to Reinvent Media.” This series of papers explores various tax and regulatory proposals that would have government play an expanded role in supporting the press, journalism, or other media content. In the latest essay, Berin Szoka, Ken Ferree, and I discuss proposals for direct subsidies for failing media outlets and out-of-work journalists.

We argue taxpayer support for failing outlets and unemployed journalists implicates significant First Amendment concerns. On the whole, subsidies can make “journalists and media operators more dependent upon the State; compromise press independence and diminish public trust in the free press; and result in government discrimination in the politically inescapable dilemma of determining eligibility for subsidies.” Such an agenda would also entail huge cost to taxpayers—initially about $35 billion per year according to advocates—and would represent “a massive wealth transfer from one class of speakers to another…”

We warn that calls for seemingly beneficent bailouts “to save” the media and journalism may actually be driven by those who have something more nefarious in mind: a “post-corporate” world shorn of media capitalists, and “such radicalism must be rejected if we hope to sustain a truly free press and uphold America’s proud tradition of keeping a high and tight wall of separation between Press and State.”

The ideas within these and other essays in the series will be worked into a major PFF filing in the Federal Communications Commission’s (FCC) proceeding on the “Future of Media” on May 7. The paper may be viewed online here and I’ve attached it down below in a Scribd reader.

Wrong Way to Reinvent Media Part 5 – Media Bailouts [Thierer Szoka Ferree – PFF] http://d1.scribdassets.com/ScribdViewer.swf

As I’ve mentioned here previously, PFF has been rolling out a new series of essays examining proposals that would have the government play a greater role in sustaining struggling media enterprises, “saving journalism,” or promoting more “public interest” content. We’re releasing these as we get ready to submit a big filing in the FCC’s “Future of Media” proceeding (deadline is May 7^th).  Here’s a podcast Berin Szoka and I did providing an overview of the series and what the FCC is doing.

In the first installment of the series, Berin and I critiqued an old idea that’s suddenly gained new currency: taxing media devices or distribution systems to fund media content. In the second installment, I took a hard look at proposals to impose fees on broadcast spectrum licenses and channeling the proceeds to a “public square channel” or some other type of public media or “public interest” content.

In our latest essay, “The Wrong Way to Reinvent Media, Part 3: Media Vouchers,” Berin and I consider whether it is possible to steer citizens toward so-called “hard news” and get them to financially support it through the use of “news vouchers” or “public interest vouchers”?  We argue that using the tax code to “nudge” people to support media — while less problematic than direct subsidies for the press — will likely raise serious issues regarding eligibility and be prone to political meddling.  Moreover, it’s unlikely the scheme will actually encourage people to direct more resources to hard news but instead just become a method of subsidizing other content they already consume.

I’ve attached the entire essay down below.

The Wrong Way to Reinvent Media, Part 3: Media Vouchers

by Adam Thierer & Berin Szoka*

PFF Progress on Point 17.4 [PDF]

Should the government play a greater role in the media sector in the name of sustaining struggling media enterprises, “saving journalism,” or promoting public media?  In this ongoing series of essays, we’ve been analyzing proposals that would have public policymakers use taxes, subsidies, or regulations to accomplish those objectives.

Part 1 of this series examined proposals to fund media content via a tax on consumer electronics, broadband service, or cell phone bills.^[1] Part 2 critiqued proposals to impose fees on broadcast spectrum licenses and channeling the proceeds to a “public square channel” or some other type of public media or “public interest” content.^[2] Other essays in this series will address proposals to tax private advertising revenues to support public media; expand postal subsidies; directly subsidize out-of-work journalists; and to prop up or bail out failing media entities.  A wrap-up essay will then focus on some potentially constructive policy reforms that could assist media enterprises without a massive infusion of state support or regulation of the press.

In this installment, we will consider whether it is possible to steer citizens toward so-called “hard news” (“serious” journalism)—and get them to financially support it—through the use of “news vouchers” or “public interest vouchers”?  We will argue that using the tax code to nudge people to support media—while less problematic than direct subsidies for the press—will likely raise serious issues regarding eligibility and be prone to political meddling.  Moreover, it’s unlikely the scheme will actually encourage people to direct more resources to hard news but instead just become a method of subsidizing other content they already consume.

Funding Hard News is Hard

Funding “hard news” has always been challenging.  Financing a team of dedicated local beat reporters, investigative journalists, national desks, foreign bureaus, and all the associated production facilities and support staff is an extremely expensive undertaking.[3] And, for all that trouble and expense, hard news rarely turns a healthy profit.  Often it has been considered a “loss leader” for media companies and has been cross-subsidized by other types of content or services.[4] This is why “bundling” has been such a popular model for many media operations such as newspapers, magazines, and cable television.  By tying news production to other types of content or services, media operators have been able to sustain the production of hard news, despite its general unprofitability on its own.

It’s worth recalling that a business model to sustain hard news production and dissemination on a mass scale really only developed mid-way through our Republic.  The early history of media in this country was characterized by the “partisan press” due to the heavy reliance on a patronage model and direct association with political parties and figures. This changed with the rise of large daily newspapers in the mid-1800s and then broadcast radio and television in the early half of the 20 ^th century.[5] Media providers were able to cross-subsidize news production independent of private or political patronage thanks to three things: (1) high-speed printing presses or broadcast facilities, (2) geographic-based market and pricing power, and (3) the widespread advertising base that was made possible by (1) and (2).

Over just the past 15-20 years, we’ve seen this traditional model upended.  Increased competition and technological/platform proliferation are placing an enormous strain on traditional media operations and business models. Schumpeterian “creative destruction” is at work in a serious, and for many, painful, way.

This is what is keeping the Federal Communications Commission,[6] the Federal Trade Commission,[7] some in Congress,[8] and many media worrywarts up at night: the fear that, as traditional financing mechanisms falter (advertising, classifieds, subscription revenues, etc.), many traditional news-gathering efforts and institutions will disappear.  And that’s leading to calls for government intervention or assistance of some sort to prop up struggling entities or directly subsidize the hard news that many of them have traditionally provided but may not be able to for much for longer.

Can Vouchers “Nudge” Citizens to Support Hard News?

One much-discussed proposal would create a “public interest voucher” or what Robert W. McChesney & John Nichols, authors of the new book The Death and Life of American Journalism, call a “Citizenship News Voucher.”^[9] This is a variant on the “artistic freedom voucher,” an idea first put forward in 2003 by economist Dean Baker as an alternative to copyright law as a means of incentivizing artistic creation.[10] The regulatory activist group Free Press, which McChesney founded, has also endorsed a news voucher scheme.[11]

The idea is fairly straightforward: give every American a voucher (McChesney and Nichols propose $200) to support the non-profit news entities of their choice by listing those entities on their tax return.  (If half of all adult Americans actually used their voucher, that would cost at least $20 billion/year.[12])  They assume this would be an efficient way of channeling money to hard news providers while avoiding the serious concerns that arise when government officials or agencies are the ones providing or steering the subsidies.  McChesney and Nichols go so far as to call their tax-and-redistribute proposal “a libertarian’s dream,” since “people can support whatever political viewpoint they prefer or do nothing at all.”[13]

McChesney and Nichols seem to be building on the approach popularized by Richard Thaler and Cass Sunstein in their highly influential 2008 book Nudge: Improving Decisions about Health, Wealth, and Happiness.^[14] Based on behavioral economics studies, Thaler and Sunstein argue that both government and private actors must inevitably make decisions about “choice architecture” and that, by setting defaults, incentives and rules smartly, “choice architects” can and should improve private decision-making—but only where they can do so without blocking, fencing-off or significantly burdening choices.^[15] While their proposal might not qualify as a nudge in the strict sense defined by Thaler and Sunstein, the essential similarity between the concepts lies in trying to restructure the choices Americans make about media consumption by changing how they spend money on media—with the declared goal of “improving” both media consumption and the media itself (by “freeing it” of supposedly evil corporate influences).

Problems with the News Voucher Proposal

While nudges might be less objectionable in circumstances where it’s objectively evident what’s really “good” for us, the same can hardly be said for media consumption.  “Nudging” consumers towards better media choices isn’t based on clear science about, say, eating better or getting more exercise, but on highly subjective decisions about what kind of information consumption is really good for individuals, communities, and polities.  For policymakers to imagine that they can steer the public’s tastes or behavior in more desirable directions through law (including media subsidy schemes) is a profoundly elitist enterprise.^[16] In the case of “news vouchers,” the hope is that the public can be encouraged to at least channel some additional support to news-gathering activities and institutions.  The problem, however, is that some people just don’t much like being “nudged” by officials from afar and they’ll often take steps to evade such paternalism—however ostensibly “libertarian” it might be.  And it could lead to a host of unintended consequences, discussed further below.[17]

As a general matter, it simply isn’t possible to make consumers choose the “right” media in an age of information abundance.^[18] With so many voices competing for our attention, it’s impossible make people watch, listen, or read if they don’t want to.  That’s especially true with hard news, which has never netted major ratings.  As Ellen P. Goodman of the Rutgers-Camden School of Law has noted: “Given the proliferation of consumer filtering and choice, these kinds of interventions are of questionable efficacy.  Consumers equipped with digital selection and filtering tools are likely to avoid content they do not demand no matter what the regulatory efforts to force exposure.”[19] As Goodman rightly argues, “regulation cannot, in a liberal democracy, force viewers to consume media products they do not think they want in the name of the public interest.”[20] There’s no reason to believe this situation has ever been different or will ever change:  Writing in 1922, famed journalist Walter Lippmann noted that, “it is possible to make a rough estimate only of the amount of attention people give each day to informing themselves about public affairs,” but “the time each day is small when any of us is directly exposed to information from our unseen environment.”[21]

McChesney and Nichols’ effort to sell this scheme as “a libertarian’s dream” is a huge stretch.  There aren’t too many libertarians—or anyone else for that matter—who favor sending more money to the federal government only to win back the right to spend it on “qualifying media entities.”  And regarding their claim that “people can support whatever political viewpoint they prefer or do nothing at all,” well, people are already free to do whatever they want with their money when it comes to media products!  Why do we need to send money to Washington first and then have policymakers tell us how we can spend it?  This seems like a needless nudge—and one that would likely result in government bureaucracy taking a cut of the money or meddling in media markets.

Analogies to educational vouchers don’t work because we long ago decided to treat education as a public good and force everyone to pay for it.  “Voucherization” may make sense as a more efficient and “libertarian” way to fund such traditional public goods, when we absolutely have to force people to spend money on certain goods or services.  While McChesney and Nichols claim that the time has come for the government to fund media as such a public good, most people probably wouldn’t agree, since the private provision of media services has worked quite well for some time—being funded by a mix of advertising and subscription revenues for centuries.  They repeatedly claim that era is over (with little substantiation) but, in reality, it is their policies that would end private, for-profit media by taxing and regulating it to death.[22]

Second, what counts as a “qualifying media entity,” and how will the IRS make that call?  Can just any outlet that purports to gather and report “news” draw support from this new federal program?  McChesney and Nichols aren’t clear: They want the IRS to “determine eligibility—according to universal standards that err on the side of expanding rather than constraining the number of serious sources covering and commenting on issues of the day.”[23] They specify only that the entity must be a non-profit (though not necessarily a federally-recognized 501(c)(3)); not accept advertising; “do exclusively media content”; “cannot be part of a larger organization or have any non-media operations”; and that everything the medium produces must be made available immediately upon publication on the Internet and made available for free to all.”[24] But, anticipating objections about the dangers of political meddling, they also insist that “the government will not evaluate the content to see that the money is going toward journalism.  Our assumption is that these criteria will effectively produce that result, and if there is some slippage so be it.”[25] The only mechanism they can suggest for reducing fraud and ensuring “seriousness” is that, “for a medium to receive funds it would have to get commitments for at least $20,000 worth of vouchers” (100 full donations of the $200 voucher).[26]

But will policymakers really let citizens redeem their vouchers on The National Inquirer or People magazine?  How about the satirical The Onion or Jon Stewart’s Daily Show?  “This is a risk we are more than willing to take,” McChesney and Nichols say since they are “operating on a gut instinct that people will use their vouchers to fund serious media while reaching into their pockets to pay for copies of The National Inquirer at the supermarket checkout.”^[27] Of course, it’s always easier to take such risks when you are playing with other people’s money!  (Nearly half of all Americans don’t pay any Federal income taxes,[28] so their $200 news voucher is definitely coming out of someone else’s tax bill.)

But it’s naïve to believe this idea is going to change the face of journalism in any serious way.  Most people will spend their vouchers on whatever media outlets and content they are currently consuming, which probably isn’t what McChesney and Nichols (or most policymakers) would prefer.  “The program may not develop exactly the type of journalism our greatest thinkers believe is necessary,” McChesney and Nichols admit.[29] But the real question is: What sort of demands will policymakers begin making if the voucher program ends up channeling money into media entities that don’t measure up to their standards or desires?  Qualification criteria would inevitably become the tool of political meddling.

The Inevitable Strings & the Political/Constitutional Paradox

This raises a fourth concern: How long will it be before government starts attaching more strings to the vouchers?  To borrow a recent headline from The Wall Street Journal, how long will it be before the “Economic Policy ‘Nudge’ Gives Way to a Shove?”^[30] Although, in theory, the news voucher idea lets consumers figure out how to steer the funds, it’s unlikely much of those funds would go toward hard news, civic-minded or “high brow” content if consumers were actually free to choose.  How do we know this?  Because we already know what consumers choose today—and those “poor” choices are part of the supposed “problem” to be solved by media vouchers.  Once people start redirecting taxpayer dollars to content that the elites and policymakers don’t like, the nudge will become a shove and more interventions will follow in the form of “voucher guidance and compliance” hearings, rules, etc.

But the pressure for strings won’t just come from the top down because, as Thomas Jefferson famously put it in the 1786 Virginia Act for Establishing Religious Freedom, “to compel a man to furnish contributions of money for the propagation of opinions which he disbelieves, is sinful and tyrannical.”[31] That is, we naturally—and rightly—resent subsidizing speech that is antithetical to our own values.  McChesney and Nichols dismiss this natural (presumably bourgeois?) indignation by saying, “people will have to accept that some of the vouchers are going to go to media that they detest.”^[32] In one sense, they are dead wrong: People won’t just accept that.  They may accept subtle, indirect subsidies, but the more clear it becomes that they are being forced to pay for media they detest—and that could scarcely be more clear than with a refundable tax credit “voucher”—they will protest and demand that certain viewpoints, or at least kinds of content, be deemed out of bounds.

But in another sense, McChesney and Nichols are probably correct: For such a scheme to work, it probably can’t come with any content strings, because this is probably what the First Amendment would require.  Yet they don’t actually explain that point, stopping only to say that we all just have to become more tolerant of “dissent”— i.e., subsidize those who disagree with us!  In this sense, news vouchers therefore would likely fall prey to a common paradox faced by proposals for the government to subsidize speech: What’s politically feasible is unconstitutional and what’s constitutional is politically impossible.  Specifically, the kinds of eligibility restrictions necessary to push a voucher scheme through Congress would probably cause the courts to strike down the whole scheme.  Even if the courts were willing to strike down only the eligibility provisions as “severable” from the rest of the scheme, the whole scheme would likely die in the very next federal budget if the courts require the funding of “offensive” or “frivolous” content.  Understanding why this is the case requires a brief overview of key First Amendment case law.

In general, “when the Government appropriates public funds to establish a program it is entitled to define the limits of that program.”^[33] Thus, in its 1991 Rust v. Sullivan decision, the Supreme Court upheld a law forbidding federal funding for family planning services to go to abortion counseling.^[34] But the Supreme Court later clarified that such viewpoint discrimination is permissible only “[w]hen the government disburses public funds to private entities to convey a governmental message.”^[35] By contrast, where subsidies are “designed to facilitate private speech,” government may not discriminate against viewpoints it does not like.^[36] Thus, the government may not fund legal services but bar funding for defendants trying to amend or otherwise challenge existing welfare law.^[37]

The First Amendment prohibits not only such viewpoint discrimination but content discrimination as well.  In 2003, the Supreme Court held that the University of Virginia could not exclude religious groups from drawing on the University’s Student Activity Fund, even though the Fund’s eligibility requirements did not discriminate against any particular religion.^[38] Yet in 1995, the Court had upheld another content restriction: a requirement that the National Endowment for the Arts (NEA) “take into consideration general standards of decency and respect for the diverse beliefs and values of the American public” when making grants to “help create and sustain not only a climate encouraging freedom of thought, imagination, and inquiry but also the material conditions facilitating the release of . . . creative talent.”^[39] The Court concluded, in an 8-1 majority, that the “’decency and respect’ criteria do not silence speakers by expressly threaten[ing] censorship of ideas.”^[40] This decision rested largely on the fact that “Educational programs are central to the NEA’s mission” and “it is well established that ‘decency’ is a permissible factor where ‘educational suitability’ motivates its consideration.”^[41] The Court left the door open to future First Amendment challenges to the statute “as applied,” such as “[i]f the NEA were to leverage its power to award subsidies on the basis of subjective criteria into a penalty on disfavored viewpoints.”^[42]

What explains these starkly different outcomes is that the Court decided that the University of Virginia’s Student Activity Fund constituted a “limited public forum”^[43] intended to “encourage a diversity of views from private speakers,” but the NEA did not.  The University had funded all speech except “religious editorial viewpoints” from its Student Activities Fund, into which every student paid a $14 mandatory fee each semester.  By contrast, the NEA made only a limited number of grants through a “competitive process” according to principles of inherently content-based principles of “excellence” as well as “geographic, ethnic, and esthetic diversity.”  Thus, it was permissible, in principle, for the NEA to exclude “indecent” content.

The Supreme Court’s decision in U.S. v. American Library Association, Inc. (2003) also suggests that content restrictions regarding Citizen News Vouchers would be struck down.  The Court held that the First Amendment did not bar Congress from requiring in the Children’s Internet Protection Act (CIPA) that “a public library may not receive federal assistance to provide Internet access unless it installs software to block images that constitute obscenity or child pornography, and to prevent minors from obtaining access to material that is harmful to them.”^[44] Critically, the Court held that libraries were not public fora:

A public library does not acquire Internet terminals in order to create a public forum for Web publishers to express themselves, any more than it collects books in order to provide a public forum for the authors of books to speak. It provides Internet access, not to “encourage a diversity of views from private speakers” … but for the same reasons it offers other library resources: to facilitate research, learning, and recreational pursuits by furnishing materials of requisite and appropriate quality.^[45]

But what is the purpose of the news voucher scheme if not to “encourage a diversity of views from private speakers?”  Indeed, this is precisely how McChesney and Nichols attempt to sell their scheme—as a “libertarian’s dream.”  But, paradoxically, the more “libertarian” and broader subsidies for speech are, the more likely the political/constitutional paradox mentioned above is to arise.

The Citizenship News Voucher Fund proposed by McChesney and Nichols strongly resembles the University of Virginia’s Student Activity Fund:  In both cases, consumers are taxed to finance a fund that is, in theory, available to any entity that meets certain basic eligibility criteria.  No attempt is made in either case to ensure the quality of content or activities being funded.  Indeed, McChesney and Nichols explicitly reject such oversight of voucher spending and insist that taxpayers must accept that much of the fund will simply be wasted on media that falls well short of the “hard” or “serious” news they’re trying to save.  (By contrast, the Corporation for Public Broadcasting, whose budget McChesney and Nichols propose increasing nine-fold to fund more public media,[46] more closely resembles the NEA as a selective grant-maker.)

Also distinguishing the Court’s decision upholding CIPA’s content-based restrictions is the fact that both Justice Kennedy in his concurrence and Justice Souter in his dissent (joined by Justice Ginsburg) agreed that First Amendment problems could be solved to the extent that adults could opt-out of filtering.^[47] But with news vouchers, the government either restricts the eligibility of certain publications to receive vouchers depending on their eligibility or it does not.

Furthermore, unlike with CIPA or the NEA, the Citizenship News Voucher wouldn’t be related to educational settings, so it’s not even clear a “decency” requirement like that Congress imposed on the NEA’s grant-making could be imposed on voucher eligibility.[48] Magazines like Playboy offer a mix of pornography and thoughtful commentary on the news, proving that there is a market for such combination of journalism and controversial entertainment and photography.  Going even further, “Naked News” is a daily show whose buxom anchors strip while delivering the news.^[49] Why wouldn’t millions of Americans, especially younger men, use their voucher for such content?  Who’s going to draw the line between porn-spiced news and “serious” content?

The typical taxpayer will be outraged by having to subsidize some media outlet, whether because of its objectionable viewpoint or indecent or unserious content.  He will fiercely resist being compelled “to furnish contributions of money for the propagation of opinions which he disbelieves and abhors,” as Jefferson put it.  Good luck getting even the most “tolerant” gay voters, for example, to accept being taxed to pay for fundamentalist Christian perspectives on the news—or vice versa!  McChesney and Nichols don’t actually say anything about the First Amendment, but do recognize that, for their program to be accepted, the American people will have to swallow the “hard pill” of accepting that “some of the vouchers are going to go to media that they detest” and “embrace dissent in reality and not just rhetoric.”^[50] They seem to think this “hard pill” is a benefit of their scheme because it would teach us all to be more tolerant of “dissent.”  That’s easy for an endowed professor at a taxpayer-funded university and avowed neo-Marxist like Robert McChesney to say, but it’s not likely to fly with most Americans.  Disputes over “qualifying entity” eligibility will only add new rancor to the Culture Wars (over sex, abortion, religion, politics, etc.).

Realistically, it would likely take years for a news voucher bill to make its way through Congress, and if it ever did pass, it would likely be tied up in the courts for years, requiring at least one visit to the Supreme Court.  If any content strings are included, the law could well lead to the same kind of ordeal as with the 1998 Child Online Protection Act, which spent nearly 9 years in litigation and went up to the Supreme Court twice.^[51] Yet somehow McChesney and Nichols imagine their proposal will save media today at this critical moment of technological transition.

Down with Copyright, Down with Capitalism?

There’s another problematic caveat to the McChesney-Nichols variant of the news voucher idea: They would disallow any copyright protection or advertising support for an entity who receives voucher funds.  That’s an effort by the authors to steer even more media activity away from the commercial sphere and toward what might be thought of as a “public option” for the press—what McChesney and Nichols euphemistically (and repeatedly) call “post-corporate” media.

Let’s not forget that McChesney has argued (during an interview on the Canadian-based “Socialist Project”) that “the ultimate goal is to get rid of the media capitalists,” and that, “unless you make significant changes in the media, it will be vastly more difficult to have a revolution.”  So, it’s important to keep his true intentions in mind when he starts claiming to have found “a libertarian’s dream” of a solution to what ails America’s media sector.^[52] It sounds more like a central planner’s dream.  The true “libertarian’s dream” would be to leave Americans free to make their own choices about media without additional meddling from the State, and to look to innovation to fund media through a combination of advertising, sponsorship, subscriptions and micropayments.

Related PFF Publications

• The Wrong Way to Reinvent Media, Part 2: Broadcast Spectrum Taxes to Subsidize Public Media , Adam Thierer, Progress on Point 17.2, March 2010.
• The Wrong Way to Reinvent Media, Part 1: Taxes on Consumer Electronics, Mobile Phones & Broadband, Adam Thierer & Berin Szoka, PFF Progress on Point 17.1, March 2010.
• Testimony at FCC’s Hearing on “Serving the Public Interest in the Digital Era”, Adam Thierer, March 2010.
• Public Option for Press Should Get the Red Pen, Adam Thierer, The Daily Caller, Jan. 2010.
• Chairman Leibowitz’s Disconnect on Privacy Regulation & the Future of News, Adam Thierer & Berin Szoka, Progress Snapshot 6.1, Jan. 13, 2010.
• Socializing Media in Order to Save It, Adam Thierer, City Journal, March 2009.
• A Manifesto for Media Freedom, Adam Thierer and Brian Anderson, 2008.
• Media Ownership Proceedings, W. Kenneth Ferree, Testimony before the Federal Communications Commission, Nov. 3, 2009.
• Media Myths: Making Sense of the Debate over Media Ownership, Adam Thierer, June 2005.

[1] Adam Thierer & Berin Szoka, The Progress & Freedom Foundation, The Wrong Way to Reinvent Media, Part 1: Taxes on Consumer Electronics, Mobile Phones & Broadband, PFF Progress on Point 17.1, March 2010, www.pff.org/issues-pubs/pops/2010/pop17.1-the_wrong_way_to_reinvent_media.pdf.

[2] Adam Thierer, The Progress & Freedom Foundation, The Wrong Way to Reinvent Media, Part 2: Broadcast Spectrum Taxes to Subsidize Public Media, Progress on Point 17.2, March 2010, www.pff.org/issues-pubs/pops/2010/pop17.2-wrong_way_part_2.pdf

[3] “Until now, the iron core of news has been somewhat sheltered by an economic model that was able to provide extra resources beyond what readers—and advertisers—would financially support. This kind of news is expensive to produce, especially investigative reporting.” Alex S. Jones, Losing the News: The Future of the News that Feeds Democracy (2009) at 4.

[4] “For a long time, publishers have used news as a ‘loss leader,’ a product sold below costs to create other sales.” The Media Consortium, The Big Thaw: Charting a New Future for Journalism, July 2009, at 36, www.themediaconsortium.org/thebigthaw.

[5] James T. Hamilton notes that, “nonpartisan reporting emerged as a commercial product in American newspaper markets in the 1870s.  Before that time, many papers openly proclaimed association with a particular political party.”  James T. Hamilton, All the News That’s Fit to Sell (2004), at 3.

[6] The Federal Communications Commission (FCC) recently kicked off a new “Future of Media” effort with a workshop on “Serving the Public Interest in the Digital Era.” See Federal Communications Commission, FCC Launches Examination of the Future of Media and Information Needs of Communities in a Digital Age, FCC Public Notice, GN Docket No. 10-25, Jan. 21, 2010, at 2, http://hraunfoss.fcc.gov/edocs_public/attachmatch/DA-10-100A1.pdf

[7] The Federal Trade Commission (FTC) has hosted two workshops asking “How Will Journalism Survive the Internet Age?” www.ftc.gov/opp/workshops/news/index.shtml

[8] Both the Senate and House of Representatives have held hearings about “the future of journalism,” and Senator Benjamin L. Cardin (D-MD) recently introduced the “Newspaper Revitalization Act,” which would allow newspapers to become nonprofit organizations in an effort to help them stay afloat—but also curtail their political editorializing.  See http://cardin.senate.gov/news/record.cfm?id=310392.

[9] Robert W. McChesney & John Nichols, The Death and Life of American Journalism (2010) at 201-206. McChesney discussed this idea in more detail when he spoke at the recent FTC event on saving journalism.  Robert W. McChesney, Rejuvenating American Journalism: Some Tentative Policy Proposals, Presentation to FTC Workshop on Journalism, March 10, 2010, www.ftc.gov/opp/workshops/news/mar9/docs/mcchesney.pdf

[10] Dean Baker, The Artistic Freedom Voucher: An Internet Age Alternative to Copyrights, Nov. 5, 2003, www.cepr.net/documents/publications/ip_2003_11.pdf.

[11] Free Press, Saving the News: Toward a National Journalism Strategy, May 2009, at 36, www.freepress.net/files/saving_the_news.pdf.

[12] McChesney & Nichols, supra note 9 at 205.

[13] Id. at 204.

[14] Richard H. Thaler & Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (2008).

[15] They define choice architecture as follows:  “A structure designed by a choice architect(s) to improve the quality of decisions made by homo sapiens. Often invisible, choice architecture is the specific user-friendly shape of an organization’s policy or physical building when homo sapiens come into contact with it. Examples of choice architecture include a voter ballot, a procedure for handling well-meaning people who forget a deadline, or a skyscraper.”  Nudge Glossary of Terms, www.nudges.org/glossary.cfm.

[16] See Adam Thierer & Berin Szoka, The Progress & Freedom Foundation, What Unites Advocates of Speech Controls & Privacy Regulation?, Progress on Point 16.19, Aug. 11, 2009, www.pff.org/issues-pubs/pops/2009/pop16.19-unites-speech-and-privacy-reg-advocates.pdf.

[17] As Glen Whitman notes in challenging such “nudging”: “the new paternalism carries a serious risk of expansion. Following its policy recommendations places us on a slippery slope from soft paternalism to hard. This would be true even if policymakers — including legislators, judges, bureaucrats, and voters — were completely rational. But the danger is especially great if policymakers exhibit the same cognitive biases attributed to the people they’re trying to help.”  Glen Whitman, The Rise of the New Paternalism, Cato Unbound, April 5, 2010, www.cato-unbound.org/2010/04/05/glen-whitman/the-rise-of-the-new-paternalism.

[18] Adam Thierer, The Progress & Freedom Foundation, Why Expansion of the FCC’s Public Interest Regulatory Regime is Unwise, Unneeded, Unconstitutional, and Unenforceable, Testimony Before the Federal Communications Commission Hearing on “Serving the Public Interest in the Digital Era,” March 4, 2010, www.pff.org/issues-pubs/testimony/2010/2010-03-04-Thierer_Remarks_at_FCC_Hearing.pdf.

[19] Ellen P. Goodman, “Proactive Media Policy in an Age of Content Abundance,” in Philip M. Napoli, ed., Media Diversity and Localism: Meaning and Metrics (2007) at 370, 374.

[20] Id.

[21] Walter Lippmann, Public Opinion (1922), at 53, 57.

[22] For example, among other things, McChesney and Nichols call for a 5% tax on consumer electronics, a 3% tax on monthly ISP & cell phone bills, a 2% sales tax on advertising, and a 7% tax on broadcasters.  See McChesney & Nichols, supra note 9 at 209-11.

[23] Id. at 202.

[24] Id.

[25] Id.

[26] Id.

[27] Id. at 205.

[28] http://www.taxpolicycenter.org/UploadedPDF/1001289_who_pays.pdf

[29] McChesney & Nichols, supra note 9 at 205.

[30] Jonathan Weisman, Economic Policy ‘Nudge’ Gives Way to a Shove, Wall Street Journal, March 8, 2010, http://online.wsj.com/article/SB10001424052748704869304575103980232739138.html.

[31] http://religiousfreedom.lib.virginia.edu/sacred/vaact.html

[32] McChesney & Nichols, supra note 9 at 205.

[33] Rust v. Sullivan, 500 U.S. 173, 194 (1991).

[34] Id. (emphasis added).

[35] Rosenberger v. Rector and Visitors of Univ. of Va., 515 U.S. 819, 833 (1995) (emphasis added).

[36] Legal Services Corp. v. Velazquez, 531 US 533, 542 (2001).  The Court in Rosenberger noted:

even in the provision of subsidies, the Government may not “ai[m] at the suppression of dangerous ideas,” Regan v. Taxation with Representation of Wash., 461 U.S. 540, 550 (1983), and if a subsidy were “manipulated” to have a “coercive effect,” then relief could be appropriate. See Arkansas Writers’ Project, Inc. v. Ragland, 481 U.S. 221, 237 (1987) (Scalia, J., dissenting); see also Leathers v. Medlock, 499 U.S. 439, 447 (1991) (“[D]ifferential taxation of First Amendment speakers is constitutionally suspect when it threatens to suppress the expression of particular ideas or viewpoints”). In addition…, a more pressing constitutional question would arise if Government funding resulted in the imposition of a disproportionate burden calculated to drive “certain ideas or viewpoints from the marketplace.” Simon & Schuster, Inc. v. Members of N. Y. State Crime Victims Bd., 502 U.S. 105, 116 (1991).

Id. at 587.

[37] 531 U.S. at 542.

[38] Rosenberger v. Rector and Visitors of Univ. of Va., 515 U.S. 819, 833 (1995).  The University’s rule prohibited funding of any group that “primarily promotes or manifests a particular belie[f] in or about a deity or an ultimate reality.”

[39] National Endowment for the Arts v. Finley, 524 U.S. 569, 574 (1998).

[40] 524 U.S. at 583 (quoting R. A. V. v. St. Paul, 505 U.S. 377 (1992) (internal quotations omitted).

[41] Id. at 584 (citing  Board of Ed., Island Trees Union Free School Dist. No. 26 v. Pico, 457 U.S. 853, 871 (1982); see also Bethel School Dist. No. 403 v. Fraser, 478 U.S. 675, 683 (1986)).

[42] Id. at 587.

[43] 515 U.S. 819 (1995).

[44] U.S. v. American Library Association, Inc., 539 U.S. 194 (2003).  See generally Robert Corn-Revere, United States v. American Library Association: A Missed Opportunity for the Supreme Court to Clarify Application of First Amendment Law to Publicly Funded Expressive Institutions, Cato Supreme Court Rev. 105, 2003, www.cato.org/pubs/scr2003/publiclyfunded.pdf.

[45] Id. at 207 (quoting Rosenberger, 515 U.S. at 834).

[46] McChesney & Nichols, supra note 9 at 192, 199.

[47] “If, on the request of an adult user, a librarian will unblock filtered material or disable the Internet software filter without significant delay, there is little to this case.” American Library Association, 539 U.S. at 214 (Kennedy, J. concurring).  Justice Souter agreed that it would ‘‘tak[e] the curse off the statute for all practical purposes’’ if adult patrons could obtain an unblocked Internet terminal ‘‘simply for the asking,’’ but doubted this would actually happen in practice.  Id. at 232.

[48] Cf. Rosenberger, 515 U.S. at 584 (“Educational programs are central to the NEA’s mission.… And it is well established that ‘decency’ is a permissible factor where ‘educational suitability’ motivates its consideration.”).

[49] See www.nakednews.com.

[50] Id. at 205.

[51] See Adam Thierer, Closing the Book on COPA?, Technology Liberation Front, Jan. 21, 2009, http://techliberation.com/2009/01/21/closing-the-book-on-copa/.

[52] Adam Thierer, The Progress & Freedom Foundation, Free Press, Robert McChesney & the “Struggle” for Media, Aug. 10, 2009, http://blog.pff.org/archives/2009/08/free_press_robert_mcchesney_the_struggle_for_media.html

Wrong Way to Reinvent Media Part 3 – Media Vouchers [Thierer & Szoka – PFF] http://d1.scribdassets.com/ScribdViewer.swf

In the latest PFF TechCast, I discuss the issues considered in the second essay in our ongoing series, “The Wrong Way to Reinvent Media.”  In this 6-minute podcast, PFF’s press director Mike Wendy chats with me about proposals to impose taxes on broadcast spectrum licenses to funnel money to public media or “public interest” content.  In my paper and this podcast, I make the case again socially engineering media choices and outcomes through the tax code.

MP3 file: PFF TechCast #2 – Saving the Media Through Broadcast Spectrum Taxes (4/5/2010)

As mentioned last week, in a new series of essays, PFF scholars will be examining proposals that would have the government play a greater role in sustaining struggling media enterprises, “saving journalism,” or promoting more “public interest” content. With many traditional media operators struggling, and questions being raised about how journalism in particular will be supported in the future, Washington policymakers are currently considering what role government can and should play in helping media providers reinvent themselves in the face of tumultuous technological change wrought by the Digital Revolution. We will be releasing 6 or 7 essays on this topic leading up to our big filing in the FCC’s “Future of Media” proceeding (deadline is May 7^th).  And here’s a podcast Berin Szoka and I did providing an overview of the series.

In the first installment of the series, Berin and I critiqued an old idea that’s suddenly gained new currency: taxing media devices or distribution systems to fund media content. In the second installment, “The Wrong Way to Reinvent Media, Part 2: Broadcast Spectrum Taxes to Subsidize Public Media,” I discuss proposals to impose a tax on broadcast spectrum licenses to funnel money to public media projects or other “public interest” content or objectives. Such a tax would be fundamentally unfair to broadcasters, who are struggling for their very survival in the midst of unprecedented marketplace turmoil.  Moreover, such a tax is unnecessary in light of the many other sources of “public interest” programming available today. Finally, even if the government creates or subsidizes wonderful, civic- and culturally-enriching content, there’s no way to force people to consume it.  Nor should government force such media choices upon the public. There’s no good reason for government to be socially-engineering media choices through taxes.

I’ve attached the entire essay down below.

The Wrong Way to Reinvent Media, Part 2: Broadcast Spectrum Taxes to Subsidize Public Media

PFF Progress on Point 17.2 [PDF]

by Adam Thierer*

In an ongoing series of essays, we‘re discussing proposals to have the government play a greater role in the media sector in the name of sustaining struggling enterprises or “saving journalism.”  Washington policymakers are currently considering what, if any, role government can and should play in assisting media operators, supporting journalism, or expanding public media.  For example, the Federal Communications Commission (FCC) recently kicked off a new “Future of Media” effort with a workshop on “Serving the Public Interest in the Digital Era.” Likewise, the Federal Trade Commission (FTC) has hosted two workshops on “How Will Journalism Survive the Internet Age?”  Meanwhile, the Senate has already held hearings about “the future of journalism,” and Senator Benjamin L. Cardin (D-MD) recently introduced the “Newspaper Revitalization Act,” which would allow newspapers to become nonprofit organizations in an effort to help them stay afloat—but also curtail their political editorializing.

Part 1 of this series examined proposals to fund media content via a tax on consumer electronics, broadband service, or cell phone bills.^[1] Other essays will address proposals to tax private advertising revenues to support public media; directly subsidize out-of-work journalists; expand postal subsidies; and to prop up or bail out failing media entities.  A wrap-up essay will then focus on some potentially constructive policy reforms that could assist media enterprises without a massive infusion of state support or regulation of the press.

This essay will discuss proposals to impose a tax on broadcast spectrum licenses to funnel money to public media projects or other “public interest” content or objectives.^[2] Such a tax would be fundamentally unfair to broadcasters, who are struggling for their very survival in the midst of unprecedented marketplace turmoil.  Moreover, such a tax is unnecessary in light of the many other sources of “public interest” programming available today. Finally, even if the government creates or subsidizes wonderful, civic- and culturally-enriching content, there’s no way to force people to consume it.  Nor should government force such media choices upon the public. There’s no good reason for government to be socially-engineering media choices through taxes.

Why the “Public Interest” Regulatory Regime Can’t Continue

There’s always been a bit of mythology surrounding so-called “public interest” regulation of broadcasting in America.^[3] Those who advocate expansive regulatory obligations for licensed radio and television operators typically claim they’re directing the content or character of broadcasting toward a nobler end—a sort of noblesse oblige for the Information Age.  At times, their rhetoric takes on a fairy-tale quality as lawmakers and regulatory advocates speak of “the public interest” in reverential and fantastic terms, all the while deftly evading any attempt to define the term.  Indeed, while public interest regulation has been considered the cornerstone of communications and media policy since the 1930s, at no time during these seven decades has the term been adequately defined.[4]

Former FCC Commissioner Glen Robinson has argued that the public interest standard “is vague to the point of vacuousness, providing neither guidance nor constraint on the agency’s action.”^[5] And Nobel Prize-winning economist Ronald Coase argued 50 years ago that “The phrase… lacks any definite meaning.  Furthermore, the many inconsistencies in commission decisions have made it impossible for the phrase to acquire a definite meaning in the process of regulation.”^[6]

And that is still true today.  Simply put, the public interest standard is not really a “standard” at all since it has no fixed meaning; the definition of the phrase has shifted with the political winds to suit the whims of those in power at any given time.[7] Nonetheless, the public interest regulatory regime remains with us and continues to apply to licensed broadcast radio and television operators.

Regardless of the rationale used to advance public interest regulation—public spectrum ownership, licensing, scarcity,^[8] pervasiveness,^[9] or “public enlightenment”—it is hard to explain why we have singled out broadcasters for unique regulatory obligations while operators of other media platforms have been given a free pass.  Such regulatory asymmetry is more difficult to justify today in light of rising competition for many new platforms and players.^[10] And it is difficult to believe that Congress or the FCC could concoct a constitutionally-defensible rationale for extending “public interest” regulation to new media platforms.^[11] Indeed, efforts to do so for both old (newspapers, print) and new (Internet, video games) media have failed when tested in the courts.  And, practically speaking, even if expansion of the old regime was desirable, it would be exceedingly difficult to do so in light of the sheer scale and volume of new media that would need to be covered.^[12]

Spending Money Instead of Imposing Mandates?

The combination of these factors has forced many traditional public interest regulatory advocates to reconsider the wisdom—or at least the practicality—of the old broadcasting regime.  One alternative that has received increasing attention in recent years would see broadcasters largely relieved of their public interest obligations and charged instead an annual fee for their use of the airwaves.  The proceeds from such a spectrum fee or tax would then be used to subsidize a variety of programs or content.  For example:

• Henry Geller, a former FCC general counsel, first advocated such a spectrum fee scheme as a method of financing more public broadcasting programming.^[13]
• Likewise, Charles Firestone, executive director of the Aspen Institute’s Communications and Society Program, has argued that the scheme could fund “educational programs for children, free political spots on an equal opportunities basis, public service announcements, or other programming that the Government wants.”[14]
• American Enterprise Institute scholar Norman Ornstein has advocated that the money be spent on a “Public Square” channel to “focus on local and national politics, policy issues, debates, campaigns, and other vital issues.”^[15]
• Elsewhere, along with Paul Taylor, Ornstein has said the money raised from such fees might be spent to ensure greater election coverage or to subsidize political advertising.^[16]
• Leonard Downie, Jr., Vice President at Large of The Washington Post, and Michael Schudson, a Professor at the Columbia University Graduate School of Journalism, have advocated the creation of a “Fund for Local News” that “would make grants for advances in local news reporting and innovative ways to support it.”^[17] The Fund would make grants to news organizations through “Local News Fund Councils” and would be financed by “fees paid by radio and television licensees, or proceeds from auctions of telecommunications spectrum, or new fees imposed on Internet service providers.”^[18]
• Most recently, Robert W. McChesney and John Nichols, authors of the new book The Death and Life of American Journalism, have proposed a 7% tax on broadcasters, which they estimate would generate $3-6 billion annually.  They would use it to fund some combination of all of the above items and far more, including welfare for journalists.^[19]

A Spectrum Tax as a Regulatory Reparations Policy

We might think of spectrum tax proposals as a sort of reparations policy for the regulatory sins of the past.  That is, broadcast spectrum fees are typically pitched as a way to “repay the public” for use of the spectrum that broadcasters obtained originally at no charge.  As Charles Firestone explains, in theory, the spectrum fee proposal:

provides a specific dollar value to the trade-off that has traditionally marked the public trusteeship theory of broadcast regulation. That is, for the initial grant and/or exclusive use of a valuable frequency, protected against interference or encroachment by governmental enforcement mechanisms, the broadcaster serves the needs and interests of the local audience service area.[20]

But like the “public interest” standard itself, spectrum taxes are also an idea whose time has passed.^[21] Broadcast spectrum fees make little sense today, even if the notion might have made some sense two or three decades ago as a method of monetizing public interest obligations.

First, using spectrum fees as a reparations policy today fails to “punish” those who originally got their spectrum free-of-charge.  The vast majority of broadcast spectrum licenses have traded hands in the secondary market for lucrative sums.  In many cases, those television and radio properties have traded hands numerous times.  Thus, the current spectrum-holders who would be taxed are generally not the beneficiaries of any “windfall,” but have instead paid competitive market prices for the spectrum they use that should be roughly commensurate with the economic value of that spectrum (at least for the limited range of uses allowed by the FCC).

Second, although broadcasting remains an important medium, its once-supreme relevance has eroded significantly over the past three decades.  Even Norm Ornstein, a defender of broadcast spectrum fees, has noted that “Over-the-air broadcasting is a dinosaur.  It’s not going to last very long.”^[22] Although that might be hyperbole, it’s certainly true that whatever weight the broadcast medium might have had in the past, that is now ancient history.

For most of the past century, broadcasting was a fairly stable industry that did not witness business model-shattering types of changes.  As its very name implies, broadcasting attracted broad audiences.  Consequently, returns were stable, even substantial at times.  Today, however, stability has given way to volatility.  The entire media marketplace is in a state of seemingly constant upheaval.  Long-standing industry players are shedding assets or even disappearing as underdogs rapidly enter the sector and become big dogs overnight.  This has become a textbook example of Schumpeterian “creative destruction” in action.^[23]

Consider what this has meant for broadcasters in terms of audience share and advertising revenues.  Start with broadcast television.  The television audience has grown increasingly fragmented since the 1950s.  The top shows on TV during that era ( e.g., “I Love Lucy”) garnered 40-50% of the viewing audience.  By the 1970s, the top broadcast TV shows (e.g., “All in the Family”) were pulling in roughly 30% of the audience.  Today, however, with so many other media options vying for our increasingly scarce attention, the top shows on television (e.g., “American Idol”) are lucky to break 15% and most shows rarely break single digits.

The “problem” is growing competition for eyeballs.  Broadcasters face a growing array of rivals: cable and satellite multi-channel distributors; DVDs and Netflix; VOD and online video; video game platforms; and much more.  According to Nielsen Media Research, the “Big 3” networks of the past (ABC, CBS, NBC), which held 90% of the primetime market in 1980, control only 30% share today.  In terms of total day shares, cable blew past broadcast television at the turn of the century and never looked back.  The advertising situation is equally bleak for television broadcasters.  According to McCann Erickson Worldwide, broadcast television’s overall share of media advertising revenues dipped below 20% back in 1990 and continues to fall steadily, standing at approximately 15% today.

Unsurprisingly, the financial outlook for the broadcast TV sector is bleak.  “Almost all the indicators for local TV are pointing down,” notes the Pew Project for Excellence in Journalism in its annual State of the News Media report.  It continues:

Revenue, too, was in a free fall.  Ad revenue is always lower in a year without federal elections or the Olympics, but the drop in 2009 was especially severe even with the unexpected bounty of political spending on health care legislation.  Revenues were estimated to have fallen by 22% from the year before.  The last two non-election years, by contrast, recorded much smaller declines: 5% in 2005 and 6% in 2007.  Looking ahead, most market analysts project revenues to grow only slightly, in the 3%-to-5% range in 2010, but that is hardly taken as good news given that it is a year that will include both the off-year elections and winter Olympic games.^[24]

In light of the recent turmoil, some major network television executives are now thinking about doing what was unthinkable just a decade ago: casting off their local broadcast affiliates and repurposing their content on alternative media platforms ( e.g., cable, satellite, Internet). For example, in early 2009, CBS Corp. President and CEO Les Moonves told an investor conference that moving all CBS network programming to cable and satellite platforms would be “a very interesting proposition.”^[25] If television networks start following their audience in the continuing mass exodus to alternative distribution platforms, how would local broadcast affiliates pay for a new federal spectrum fee? Even if that scenario does not develop, local television broadcasters face an uncertain future, and likely declining revenues for some time to come.

The situation for broadcast radio operators is even grimmer.  The competition for our ears has never been more intense with satellite radio, non-commercial radio, iPods and MP3 players, online radio, downloadable music, podcasting, etc. with terrestrial broadcasters for audience share.  As a result, radio operators have seen their audiences dwindle and their revenues nose-dive. According to Arbitron, time spent listening to radio has dropped for every age demographic they’ve measured for the past decade.  And BIA Financial Network notes that while the radio revenue growth rate ran between 7% and 14% during the late 1990s, the industry hasn’t seen growth above 3% since 2002 and in recent years growth has rarely broken 1%.  Furthermore, the Pew Project for Excellence in Journalism reports that:^[26]

• Total radio revenue was down 18% in 2009 from 2008, according to the Radio Advertising Bureau.
• Local and national radio advertising—the biggest sources of revenue for radio—were both down and projected to continue falling at least through 2011.  There was growth in online advertising, but not enough to make up for the loss of on-air advertising.
• National and local advertising fell by 20% and 19% respectively in 2009 compared to 2008.  Local advertising has always been radio’s lifeblood.
• Online advertising revenue saw a 13% increase in 2009, but represented only 3% of industry advertising revenue and was not enough to offset the losses in other categories.
• Off-air revenues, such as billboards and concert sponsorships, fell 9% in 2009 compared to 2008, to 1.3 billion.  While these revenues currently make up only a small part of radio revenue, the continued decline of national and local advertising may add to their importance.

Again, can struggling radio broadcasters absorb the added burden of a new national spectrum tax in light of their precarious situation? Indeed, it’s numbers like these that usually leads intervention-minded analysts to advocate subsidies, not taxes, for some struggling media entities!

Where Would the Money Go?

Questions also surround the pool of funds that would be amassed through the creation of a broadcast spectrum fee.  Given the declining fortunes of the broadcast industry, it seems unlikely the fee would generate as much revenue as some proponents might imagine. Let’s assume, however, that the spectrum levy netted respectable sums.  How would those funds be used?

America’s recent experience with spectrum auction proceeds suggests that Congress would first look to use a spectrum fee to pay for federal spending priorities or pay off past budget deficits instead of channeling those funds to new “public square” or “public interest” initiatives.  But, for the sake of argument, let’s assume Congress honored a pledge to use the broadcast fee only for its intended purpose.  What exactly counts as a “public square” or “public interest” initiative, and who would be in charge of it?

Some proponents of a spectrum fee seem to long for a world in which everything looks or sounds like a combination of National Public Radio, the Public Broadcasting Service, and cable “public access” channels.  But regardless of the quality of such networks or the programming on them, the viewing and listening public has shown a clear desire for programming of a very different nature.  While critics might lament what they regard as the “low-brow” entertainment or supposedly lower-quality news seen or heard on some commercial networks or stations, there is no denying that citizens tune in to commercial programs in very large numbers.  Whether regulatory advocates care to admit it, supply and demand are at work in America’s media marketplace and citizens vote with their eyes and ears all the time.  Media scholar Ben Compaine, co-author of Who Owns the Media?, focuses on the real issue here, choice:

If large segments of the public choose to watch, read, or listen to content from a relatively small number of media companies, that should not distract policy makers from the key word there: choose. … It may indeed be that at any given moment 80 percent of the audience is viewing or reading or listening to something from the 10 largest media players.  But that does not mean it is the same 80 percent all the time, or that it is cause for concern.^[27]

Commenting on efforts to make the modern media landscape look more like PBS or NPR, Compaine notes: “Content might well be different.  But it wouldn’t necessarily be better.… This might work only in a … world of enforced equality, where no democracy of content was allowed, where the voice of the audience was not heard.”^[28] He notes that PBS is instructive in this regard since, even in the days when it only had three primary rivals, it could rarely get the attention of more than 2% of the total TV audience.  And as television journalist Jeff Greenfield has noted, “[W]hen you no longer need the skills of a safecracker to find PBS in most markets, you have to realize that the reason people aren’t watching is that they don’t want to.”^[29]

Simply put, in a world of unlimited options and freedom of media choice, there’s just no way to force the audience to tune in.^[30] Absent truly repressive measures to limit choice or alter consumer media consumption patterns, it will be impossible for policymakers to force the masses to pay attention to what they want them to see or hear in an age of abundant media content and unrestricted choice.  “[R]egulation cannot, in a liberal democracy, force viewers to consume media products they do not think they want in the name of the public interest,” argues Ellen P. Goodman of the Rutgers-Camden School of Law.^[31]

Our Many “Public Squares”

More importantly, there seems to be little need for a new spectrum fee for “public interest” content or a “public square” channel in light of the explosion of civic-oriented and culturally enriching programming on both traditional and new media platforms.  In essence, we now have many “public square” channels.

For example, the growth of news channels and programs (CNN, Fox News, MSNBC, Current TV, many financial news networks, and more) and international news outlets (BBC America, CNN International, etc.) has been well-documented.  Most notable in this regard is the stunning success of the cable industry’s C-SPAN network and its sister properties.^[32] But these cable news channels and programs are also a growing force online as well.  “Like their television programs, the major cable news channels’ websites attracted record viewership in 2008, driven in a large part by the political and economic news of the year,” reports the Pew Project for Excellence in Journalism.^[33] Moreover, these cable news sites “have also evolved into true multimedia destinations.  All now feature video archives, RSS feeds and features for accessing the sites on mobile devices.  They all offer live streaming content.”^[34] Meanwhile, C-SPAN recently created the C-SPAN Video Library,[35] which archives 23 years worth (1987-on) of fully searchable (and free) video content, including: 161,000 overall hours of programming; 56,600 hours of House & Senate floor activity; and, 20,152 hours of House & Senate committee hearings.[36]

Americans have many other ways of finding important news and civic information online.  The 2008 presidential election serves as a dramatic illustration of how voters have become better informed and how candidates have exciting new ways to connect with them.  The Pew Internet & American Life Project found that “some 74% of Internet users—representing 55% of the entire adult population—went online in 2008 to get involved in the political process or to get news and information about the election.”^[37] And President Barack Obama’s unprecedented use of new media tools during 2008 is often credited with helping to propel him into the White House.  Millions of Americans made their views known about various issues on sites such as Obama’s Change.gov website.  Wired reported that “Obama’s online success dwarfed [Senator John McCain’s], and proved key to his winning the presidency.”^[38]

Volunteers used Obama’s website to organize a thousand phone-banking events in the last week of the race—and 150,000 other campaign-related events over the course of the campaign.  Supporters created more than 35,000 groups clumped by affinities like geographical proximity and shared pop-cultural interests.  By the end of the campaign, myBarackObama.com chalked up some 1.5 million accounts.  And Obama raised a record-breaking $600 million in contributions from more than three million people, many of whom donated through the web.^[39]

Four years earlier, Joe Trippi, former campaign manager of Howard Dean’s 2004 presidential campaign and the author of The Revolution Will Not Be Televised: Democracy, The Internet, and The Overthrow of Everything, had noted that the Dean campaign’s heavy use of new, interactive media and communications technologies was, “a sneak preview of coming attractions—the interplay between new technologies and old institutions.  The end result will be massive communities completely redefining our politics, our commerce, our government, and the entire public fabric our culture.”^[40] He concluded: “what we are seeing—at its core—is a political phenomenon, a democratic movement that proceeds from our civic lives and naturally spills over in the music we hear, the clothes we buy, the causes we support.”^[41] President Obama’s campaign certainly seems to have been proof of that.

Of course, all this comes in addition to the stunning proliferation of user-generation media such as blogs, discussion boards, listservs, social networking sites, Twitter, You Tube, and so on.  Dan Gillmor, author of We the Media: Grassroots Journalism By the People, For the People, notes just how profound the impact of new media and citizen journalism will be:

Tomorrow’s news reporting and production will be more of a conversation, or a seminar.  The lines will blur between produces and consumers, changing the role of both in ways we’re only beginning to grasp now.  The communications network itself will be a medium for everyone’s voice, not just the few who can afford to buy multimillion-dollar printing presses, launch satellites, or win the government’s permission to squat on the public’s airwaves.^[42]

Likewise, in its recent State of the News Media 2010 report, the Pew Project for Excellence in Journalism reported that “Citizen journalism at the local level is expanding rapidly and brimming with innovation.”^[43] The report also noted that:

highly promising citizen and alternative sites are emerging daily.  Imaginative news formats, partnerships, formats, technological capabilities and passionate supporters of journalism values offer significant reasons for optimism as journalism continues its mission to inform citizens, make their lives better and nurture democratic processes.^[44]

Conclusion

In light of these developments, it’s hard to take seriously the charge that “deliberative democracy” is somehow on the decline in America and that the imposition of a spectrum fee to create a government-controlled “public square channel” or more “public interest” content in general would actually change the constitution of news, culture, or civic engagement in any significant way.  And even if government creates or subsidizes wonderful, civic- and culturally-enriching content, there’s no way to force people to consume it.

Finally, regardless of how spectrum fee proceeds might be spent, the proposal raises fundamental fairness issues for broadcasters.  Indeed, it is doubly insulting for them.  Not only has public broadcasting and non-commercial media been siphoning off more and more market share in recent years, but this proposal would impose a new tax on private broadcasters to fund those competitors (or some other media outlets) at a time when broadcasters are struggling for their very existence.  If Congress imposed a spectrum fee on broadcasters, it would essentially be signing a death warrant for the medium.  It’s hard to see how that’s in “the public interest.”

Related PFF Publications

• The Wrong Way to Reinvent Media, Part 1: Taxes on Consumer Electronics, Mobile Phones & Broadband, Adam Thierer & Berin Szoka, PFF Progress on Point 17.1, March 2010.
• Testimony at FCC’s Hearing on “Serving the Public Interest in the Digital Era”, Adam Thierer, March 2010.
• Public Option for Press Should Get the Red Pen, Adam Thierer, The Daily Caller, Jan. 2010.
• Chairman Leibowitz’s Disconnect on Privacy Regulation & the Future of News, Adam Thierer & Berin Szoka, Progress Snapshot 6.1, Jan. 13, 2010.
• Socializing Media in Order to Save It, Adam Thierer, City Journal, March 2009.
• A Manifesto for Media Freedom, Adam Thierer & Brian Anderson, 2008.
• Media Ownership Proceedings, W. Kenneth Ferree, Testimony before the Federal Communications Commission, Nov. 3, 2009.
• Media Myths: Making Sense of the Debate over Media Ownership, Adam Thierer, June 2005.

[2] This essay is condensed from a chapter that appeared in a new book from Congressional Quarterly Press. See: Resolved, Broadcasters Should be Charged a Spectrum Fee to Finance Programming in the Public Interest, Pro: Norm Ornstein, Con: Adam Thierer, in Richard J. Ellis and Michael Nelson, Debating Reform: Conflicting Perspectives on How to Fix the American Political System (2010) at 53-69.

[3] See generally Adam Thierer, The Progress & Freedom Foundation, Media Myths: Understanding the Debate over Media Ownership (2005) at 85-104, www.pff.org/issues-pubs/books/050610mediamyths.pdf.

[4] Adam Thierer, The Progress & Freedom Foundation, Why Expansion of the FCC’s Public Interest Regulatory Regime is Unwise, Unneeded, Unconstitutional, and Unenforceable, Testimony Before the Federal Communications Commission Hearing on “Serving the Public Interest in the Digital Era,” March 4, 2010, www.pff.org/issues-pubs/testimony/2010/2010-03-04-Thierer_Remarks_at_FCC_Hearing.pdf.

[5] Glen O. Robinson, The Federal Communications Act: An Essay on Origins and Regulatory Purpose, in A Legislative History of the Communications Act of 1934 3, 14 (Max D. Paglin ed., 1989). Likewise, Lawrence J. White has noted that, “The ‘public interest’ is a vague, ill-defined concept. Under the ‘public interest’ banner the Congress and the FCC have established far too many protectionist, anticompetitive, anti-innovative, inflexible, output-limiting regulatory regimes and have unnecessarily infringed on the First Amendment rights of broadcasters.” See Lawrence J. White, Spectrum for Sale, The Milken Institute Review (June 2001) at 38. See also William T. Mayton, The Illegitimacy of the Public Interest Standard at the FCC, 38 Emory Law Journal 715, 716 (1989).

[6] Ronald H. Coase, The Federal Communications Commission, 2 J. L. & Econ. 1, 8–9 (1959). Even supporters of broadcast regulation such as Paul Taylor and Norman Ornstein admit that, “neither in the 1927 [Radio] Act nor in the 1934 [Communications] Act, nor subsequently, did Congress define clearly what actions by broadcasters would represent managing their stations in the public interest.” Paul Taylor & Norman Ornstein, New America Foundation, A Broadcast Spectrum Fee for Campaign Finance Reform, Spectrum Series Working Paper No. 4, (2002) at 6.

[7] See Adam Thierer, Media Myths: Making Sense of the Debate over Media Ownership (2005) at 85-104; www.pff.org/issues-pubs/books/050610mediamyths.pdf; Adam Thierer, Is the Public Served by the Public Interest Standard? The Freeman, Vol. 46, No. 9, Sept. 1996, at 618-20, www.thefreemanonline.org/featured/is-the-public-served-by-the-public-interest-standard; William T. Mayton, The Illegitimacy of the Public Interest Standard at the FCC, 38 Emory Law Journal, 1989, at 715-69.

[8] See John W. Berresford, Federal Communications Commission, The Scarcity Rationale for Regulating Traditional Broadcasting: An Idea Whose Time Has Passed, FCC Media Bureau, Staff Research Paper No. 2005-2, (March 2005) www.fcc.gov/ownership/materials/already-released/scarcity030005.pdf. Berresford refers to the scarcity rationale as “outmoded,” “based on fundamental misunderstandings of physics and economics,” and “no longer valid.”

[9] Adam Thierer, Why Regulate Broadcasting : Toward a Consistent First Amendment Standard for the Information Age, 15 CommLaw Conspectus (Summer 2007) at 431-482; http://commlaw.cua.edu/articles/v15/15_2/Thierer.pdf.

[10] See Adam Thierer & Grant Eskelsen, The Progress & Freedom Foundation, Media Metrics: The True State of the Modern Media Marketplace, Summer 2008, www.pff.org/mediametrics.

[11] Thierer, supra note 4.

[12] Id. at 7-12.

[13] “By taking some modest fee from commercial broadcasters for their use of the public spectrum in lieu of the public trustee obligation, noncommercial television could be adequately funded to deliver high-quality public service programming.” Henry Geller, Geller to FCC: Scrap the Rules, Try a Spectrum Fee, Current.org, Oct. 30, 2000, www.current.org/why/why0020geller.shtml. Also see Henry Geller, Promoting the Public Interest in the Digital Era, Federal Communications Law Journal, Vol. 55, No. 3, 2003, www.law.indiana.edu/fclj/pubs/v55/no3/Geller.pdf.

[14] Charles M. Firestone, The Aspen Institute, The Spectrum Check Off Alternative to Public Interest Regulation of Broadcasters, www.aspeninstitute.org/policy-work/communications-society/papers-interest/-spectrum-check-alternative-public-interest-regul

[15] See Ornstein supra 2 at 61. Also see Remarks of Norman Ornstein at George Mason University event, The Gore Commission, 10 Years Later: The Public Interest Obligations of Digital TV Broadcasters in Perfect Hindsight, Oct. 3, 2008, www.iep.gmu.edu/documents/Ornstein.doc.

[16] Paul Taylor and Norman Ornstein, New America Foundation, A Broadcast Spectrum Fee for Campaign Finance Reform, Spectrum Series Working Paper #4, June 2002, www.newamerica.net/files/IssueBrief5.FreeAirTime.TaylorOrnstein.pdf.

[17] Leonard Downie, Jr. & Michael Schudson, The Reconstruction of American Journalism, Columbia Journalism Review, Oct. 20, 2009, at 92, available at www.scribd.com/doc/21268382/Reconstruction-of-Journalism.

[18] Id.

[19] See Robert W. McChesney & John Nichols, The Death and Life of American Journalism (2010) at 209-10.

[20] Firestone, supra note 14.

[21] Adam Thierer and Wayne Crews, Cato Institute, Just Don’t Do It: The Digital Opportunities Investment Trust (DO IT) Fund, Cato TechKnowledge, No. 35, May 6, 2002, www.cato.org/tech/tk/020506-tk.html

[22] Quoted in Neil Hickey, TV’s Big Stick: Why the Broadcast Industry Gets What it Wants in Washington, Columbia Journalism Review, September/October 2002, p. 53.

[23] See Thierer & Eskelsen, supra note 7.

[24] Pew Project For Excellence in Journalism, Local TV, The State of the News Media 2010, March 2010, www.stateofthemedia.org/2010/local_tv_summary_essay.php.

[25] Michael Grotticelli, Local TV Stations Face Uncertain Future, Broadcast Engineering, Feb. 23, 2009, http://broadcastengineering.com/news/local-stations-face-uncertain-future-0223.

[26] Pew Project for Excellence in Journalism, Audio – Traditional Broadcast and Broadcast Online, The State of the News Media 2010, March 2010, www.stateofthemedia.org/2010/audio_traditional_broadcast.php.

[27] Ben Compaine, Domination Fantasies, Reason, Jan. 2004, at 33, http://reason.com/archives/2004/01/01/domination-fantasies

[28] Id.

[29] Quoted in Thomas G. Krattenmaker and Lucas A. Powe, Jr., Regulating Broadcast Programming (1994) at 314.

[30] Ellen P. Goodman of the Rutgers-Camden School of Law argues: “Given the proliferation of consumer filtering and choice, these kinds of interventions are of questionable efficacy. Consumers equipped with digital selection and filtering tools are likely to avoid content they do not demand no matter what the regulatory efforts to force exposure.” Ellen P. Goodman, “Proactive Media Policy in an Age of Content Abundance,” in Philip M. Napoli, ed., Media Diversity and Localism: Meaning and Metrics (2007) at 370, 374.  And there is no reason to believe this situation has ever been different or will ever change. Writing in 1922, famed journalist Walter Lippmann noted that, “it is possible to make a rough estimate only of the amount of attention people give each day to informing themselves about public affairs,” but “the time each day is small when any of us is directly exposed to information from our unseen environment.” Walter Lippmann, Public Opinion (1922), p. 53, 57.

[31] Id. at 374.

[32] Importantly, many people fail to realize that C-SPAN is a private, non-profit company that is provided as a public service by cable industry contributions. It receives no government or taxpayer contributions. From 1979-2009, total license fees paid by cable & satellite companies to support C-SPAN totaled $922 million. See Adam Thierer, The Progress & Freedom Foundation, C-SPAN, Civic-Minded Programming & Public Interest Regulation, PFF Blog, March 2, 2010, http://blog.pff.org/archives/2010/03/c-span_civic-minded_programming_public_interest_re.html

[33] Cable TV, in State of the News Media 2009, www.stateofthemedia.org/2009/narrative_cabletv_digitaltrends.php?media=7&cat=6/#key6

[34] Id.

[35] www.c-spanvideo.org/videoLibrary

[36] See Thierer, supra note 28. See also Brian Stelter, C-Span Puts Full Archives on the Web, New York Times, March 15, 2010,  www.nytimes.com/2010/03/16/arts/television/16cspan.html

[37] Aaron Smith, The Internet’s Role in Campaign 2008, The Pew Internet & American Life, April 15, 2009, www.pewinternet.org/Reports/2009/6–The-Internets-Role-in-Campaign-2008.aspx

[38] Sarah Lai Stirland, Propelled by Internet, Barack Obama Wins Presidency, Wired.com, Nov. 4, 2008,  www.wired.com/threatlevel/2008/11/propelled-by-in

[39] Id.

[40] Joe Trippi, The Revolution Will Not Be Televised: Democracy, The Internet, and The Overthrow of Everything (2004), at 203. [emphasis original].

[41] Id.

[42] Dan Gillmor, We the Media: Grassroots Journalism By the People, For the People (2004), at xiii.

[43] Pew Project For Excellence in Journalism, Introduction, State of the News Media 2010, March 2010,   www.stateofthemedia.org/2010/overview_intro.php

[44] Pew Project For Excellence in Journalism, Community Journalism, State of the News Media 2010, March 2010,  www.stateofthemedia.org/2010/specialreports_community_journalism.php

Wrong Way to Reinvent Media Part 2 – Broadcast Spectrum Taxes [Thierer- PFF] http://d1.scribdassets.com/ScribdViewer.swf

By Adam Thierer & Berin Szoka

As we mentioned yesterday, in a new series of essays, we will be examining proposals being put forward today that would have the government play a greater role in sustaining struggling media enterprises, “saving journalism,” or promoting more “public interest” content. With many traditional media operators struggling, and questions being raised about how journalism in particular will be supported in the future, Washington policymakers are currently considering what role government can and should play in helping media providers reinvent themselves in the face of tumultuous technological change wrought by the Digital Revolution. We will be releasing 6 or 7 essays on this topic leading up to our big filing in the FCC’s “Future of Media” proceeding (deadline is May 7^th).

In the first installment of our series, we will critique an old idea that’s suddenly gained new currency: taxing media devices or distribution systems to fund media content. We argue that such media income redistribution is fundamentally inconsistent with American press traditions, highly problematic under the First Amendment, difficult to implement in a world of media abundance and platform convergence, and likely to cause serious negative side effects.  Bottom line: Don’t tax our iPhones or broadband to subsidize media!

We’ve attached the entire text of the piece below. (Installment #2, on broadcast spectrum taxes to subsidize public media, will be released next week.)

The Wrong Way to Reinvent Media, Part I: Taxes on Consumer Electronics, Mobile Phones & Broadband

by Adam Thierer & Berin Szoka*

PFF Progress on Point 17.1 [PDF]

With many traditional media operators struggling, and questions being raised about how journalism in particular will be supported in the future,[1] Washington policymakers are currently considering what role government can and should play in helping media providers reinvent themselves in the face of tumultuous technological change wrought by the Digital Revolution. For example, the Federal Communications Commission (FCC) recently kicked off a new “Future of Media” effort with a workshop on “Serving the Public Interest in the Digital Era.” Likewise, the Federal Trade Commission (FTC) has hosted two workshops asking “How Will Journalism Survive the Internet Age?”  Meanwhile, the Senate has already held hearings about “the future of journalism,” and Senator Benjamin L. Cardin (D-MD) recently introduced the “Newspaper Revitalization Act,” which would allow newspapers to become tax-exempt non-profits in an effort to help them stay afloat.

In a series of forthcoming essays leading up to the May 7 filing deadline for the FCC’s “Future of Media” proceeding, we will discuss and critique some of the leading proposals being put forward that would have the government play a greater role in sustaining struggling media enterprises, “saving journalism,” or promoting more “public interest” content.

In this essay, we discuss an old idea that‘s gained new currency: taxing media  devices or distribution systems to fund media content. We argue that such media income redistribution is fundamentally inconsistent with American press traditions, highly problematic under the First Amendment, difficult to implement in a world of media abundance and platform convergence, and likely to cause serious negative side effects.

The BBC Model: Taxing Devices

Taxing devices to subsidize media content has never gained much traction here in the U.S., but it’s been used by some foreign governments for many decades.  Most famously, taxes on radios, eventually replaced by taxes on televisions, have sustained the BBC in the U.K. since its inception as the world’s first national broadcasting system in 1922. According to the most recent BBC annual report, the annual “fee” was raised to £142.50/year (currently $213.43) as of April 2009.  Failure to pay the fee is, of course, a crime and punished with stiff fines up to £1000 ($1497.75)—and radio emissions from unlicensed televisions can be detected by government vans that rove Britain’s streets looking for violators.  The revenue generated by the tax is then allocated among various BBC media products, with most of it going to the BBC 1 and BBC 2 television channels.

The U.S. has taken a different approach.  We’ve not embedded a tax in the cost of new media devices to pay for the content delivered over those devices.  (Of course, that’s at least partially because we’ve had a strong tradition of free markets in media ever since we revolted against the Brits and mercantilism, their system of state-directed economic planning!)  Generally speaking, private media operators have been expected to pay their own way in this country and not look to government for direct support.

America has had some indirect subsidies in the form of reduced postal rates for print media, as well as tax treatment for advertising.  And taxpayer dollars have been channeled to the CPB/PBS/NPR regime, of course.  But such public subsidy is small potatoes when compared to private media in the U.S.  For example, the Corporation for Public Broadcasting’s 2010 budget is just $400 million.[2] While many look to CPB to fund children’s programming (among its many other activities), its entire budget is no more than a quarter of the total amount of U.S. advertising revenue produced by children’s programming from food and beverages products alone: $1.6 billion in 2006 by the FTC’s most conservative estimates.[3] That comparison illustrates the vital importance of advertising to media,[4] but subscriptions, direct sales, and private patronage have also been major economic engines of media in United States.

But the idea of more direct government support for media (and journalism, in particular) has always been lurking out there.  There’s long been a small but vociferous crowd of academics and policymakers advocating huge increases in government spending on non-commercial or public media.  And some of them have even toyed with a tax on technology to cross-subsidize the media content that flows over those devices or networks.  Most recently, Robert W. McChesney and John Nichols, authors of the new book The Death and Life of American Journalism, have proposed a 4-part tax plan to raise money ($18-21 billion) for a massive $35 billion/year “public works” program for the press (with the remainder coming from other sources):[5]

• a 5% tax on consumer electronics (they estimate it would bring in $4 billion/year)
• a 3% tax on monthly ISP & cell phone bills (estimated $6 billion/year)
• a 2% sales tax on advertising (estimated $5 to $6 billion/year)
• a 7% tax on broadcasters (estimated $3-6 billion/year)

Similarly, Leonard Downie, Jr., Vice President at Large of The Washington Post, and Michael Schudson, a Professor at the Columbia University Graduate School of Journalism, have advocated the creation of a “Fund for Local News” that “would make grants for advances in local news reporting and innovative ways to support it.”[6] The Fund would make grants to news organizations through “Local News Fund Councils” and would be financed by “fees paid by radio and television licensees, or proceeds from auctions of telecommunications spectrum, or new fees imposed on Internet service providers.”[7] (Note: Proposals to impose fees on radio and television licensees will be discussed in a subsequent installment of this PFF series.  But for purposes of this installment, we reference the Downie & Schudson plan because of its call for fees on ISPs as one method of financing media going forward.)

More Platforms, More Taxes

McChesney and Nichols don’t go into a lot of detail about their tax proposals, but the consumer electronics tax they favor appears to be based on the 1967 Carnegie Commission Report, which called for a 5% tax on all new television purchases—a variant on Britain’s annual licensing fee.  But instead of just taxing “televisions”—which would be very difficult in a world of technological convergence where consumers can “watch television” on any number of devices (PCs, mobile phones, portable gaming devices, portable media players, etc.)—they apparently want to tax all consumer electronic devices.  Thus, they seem to recognize the reality of convergence but their answer is to just tax everything!

The British themselves have struggled with technological change: In 1971, the radio fee first introduced in 1922 was abolished, and in 1972, so was the BBC’s radio monopoly, with commercial radio stations being allowed to compete with BBC Radio for the first time.  One might argue that abolishing the radio tax and relying on a single tax (on televisions) to fund the BBC’s television programming (67% of BBC spending) as well as BBC radio (17%) was simply more efficient—since most consumers had a television as well as a radio.  Indeed, actually implementing any media device tax in the U.S. could prove very difficult, since countering evasion would require imposing sales taxes on online retailers ranging from Amazon.com to TigerDirect.com to countless small operators who sell TVs, DVD players, cell phones, and a wide variety of other gadgets.  So much for the Internet sales tax moratorium!

But the evasion problem is a real one. The BBC estimates an 8.7% evasion rate, and it’s not clear how much more (or less) of a problem evasion might be when the tax is imposed at the point of sale (as McChesney and Nichols propose) rather than every year (as in Britain).  But clearly, the problem can’t be solved simply by trying to tax all consumer electronics:  The higher the tax rate, the more likely a black market will develop for discounted devices—with all the problems that generally come with black markets, such as funding organized crime. Whenever someone proposes a single-digit tax rate for anything, it’s worth remembering that the federal income tax started out at 1-7% back in 1913—and, well, we all know how that turned out!  (Top rates rose to 67-73% during World War I, fell again to the mid-20s under Coolidge, then jumped again to 63% by 1933 and didn’t fall below 50% till 1986!)  Maybe McChesney and Nichols realize how ugly black markets would get if tax rates on devices rise in the future—and perhaps that’s why they’re trying to spread the pain around by taxing broadband and wireless service, advertising and broadcasting, too.  But, as discussed next, that’s another problem with the plan.

Taxation’s Negative Disincentives

Taxes distort markets and human behavior.  Long ago, Chief Justice John Marshall taught us that “the power to tax is the power to destroy.”  As the late Clarence B. Carson noted in an article of the same name:

Any level of taxation will make some undertakings unprofitable or submarginal. In practice, any increase in taxes will drive some people out of business, prevent them from going into business, or make it difficult or impossible for them to sustain themselves by whatever they are doing.[8]

This helps us understand why raising taxes on mobile phones and broadband bills would be particularly foolish way of supporting media:  it will distort beneficial behavior by both providers and consumers of communications conduit.

The FCC just recently reported that cost is a major factor for many households who decide not to buy broadband service (even though it’s available).  Why, after the FCC spent 13 months producing a 376-page, Congressionally mandated National Broadband Report on ways to increase the utilization and affordability of broadband, would we want to do anything to boost broadband bills, even in the name of “saving journalism”?  Increased taxes on broadband bills might discourage some broadband providers from rolling out innovative new services as rapidly as planned.  And once the new service tax is passed along to consumers—as all business taxes inevitably are—they might be less likely to adopt broadband, or might even cancel existing service.  How would that benefit media and journalism?

The same goes for mobile phones. CTIA—The Wireless Association estimates that wireless users already pay an average 15% tax (local state and federal) on their cell phone bills.  Moreover, if there is one thing we can count on, it’s that taxes inevitably rise once they get on the books, whatever the intention of their initial architects.  That‘s especially true when the tax creates a new class of subsidy recipients who have a vested interest in keeping the scheme alive and growing. Thus, what starts out as 3-5% tax on phones, broadband, and consumer electronics, will likely grow to be much higher over time.  Pretty soon the FCC will look like the massively inefficient Department of Agriculture, doling out subsides to everybody and his brother who qualifies for media industry corporate welfare.

How Will the Government Spend Your Money?

But the more interesting question about such a media tax may be on the  payout side of the scheme.  Herein lies a fundamental difference between the BBC model and what McChesney and Nichols are proposing: The BBC fees have always been used to fund BBC content only, not for all media.  True, the BBC once held monopolies in radio and television, but those monopolies died long ago, and when they did, the British did not share fee revenue with the BBC’s competitors.  Instead, commercial radio and television in the UK have had to rely on subscription and advertising revenues, just as in the US.  Thus, the British model does not answer a profoundly difficult question: Even if we assume government could create a reasonably effective media tax collection regime, who would qualify for a cut of the money?

In an age of user-generated content and a wide variety of hybrid media products, it would seem that defining eligibility criteria for the subsidy might be significantly more challenging than it was in the past. Would blogs qualify?  What about live reporting via Twitter or photo-journalism via Flickr?  Who gets to decide what qualifies as news worth subsidizing, as opposed to mere opinions or aggregation?  Similarly, the “Fund for Local News” and “Local News Fund Councils” favored by Downie and Schudson would be doubly problematic.  They propose that, “The criteria for grants should be journalistic quality, local relevance, innovation in news reporting, and the capacity of the news organization, small or big, to carry out the reporting.”[9] But, again, who determines “journalistic quality” and “the capacity… to carry out the reporting” or even what constitutes “local” news?

Beyond such practical problems, determining eligibility raises profound First Amendment questions because, as the Supreme Court has held, “in the realm of private speech or expression, government regulation may not favor one speaker over another.”[10] The Court has also held that “Both tax exemptions and tax deductibility are a form of subsidy that is administered through the tax system.”[11] Thus, the government may not pick preferred classes of speakers for subsidies, just as it may not single out disfavored classes for penalties.  For example, a state university may not selectively deny funding to a gay and lesbian students association, because, as the Eighth Circuit has held:

a public body that chooses to fund speech or expression must do so even-handedly, without discriminating among recipients on the basis of their ideology.  The University need not supply funds to student organizations; but once having decided to do so, it is bound by the First Amendment to act without regard to the content of the ideas being expressed.  This will mean, to use Holmes’s phrase, that the taxpayers will occasionally be obligated to support not only the thought of which they approve, but also the thought that they hate. That is one of the fundamental premises of American law.[12]

And there’s also a First Amendment-related concern here associated with the potentially—if subtly—coercive effects of subsidies on the independent editorial discretion of news-gatherers.  Downie and Schudson insist they “understand the complexity of establishing a workable grant selection system and the need for strict safeguards to shield news organizations from pressure or coercion from state councils or anyone in government.”^[13] Yet they hope political pressure can, somehow, be kept to a minimum.  Likewise, McChesney and Nichols largely dismiss such concerns about undue political influence on subsidized entities—even though they cite several examples of politicians attempting to use the purse strings to influence PBS and NPR funding over the past four decades![14]

Regardless, these scholars fail to account for the fact that, going forward, political pressure would likely grow in proportion to dependence of media entities upon such public subsidy and the overall amount of those subsidies.  After all, we’re talking about taxpayer funding for the press on an unprecedented scale here.  Moreover, the more visible these subsidies become—especially then the funding goes to highly controversial media content or outlets ( e.g., involving pornography, vulgarity, politics, religion, abortion, homosexuality)—the more likely the public and politicians are to clamor for rules on who gets what.  We’ve already seen a microcosm of that concern with National Endowment for the Arts funding for controversial art and culture in the past.  Now imagine media subsidies on the scale that McChesney and Nichols envision coupled with Downie and Schudson’s “Local News Fund Councils” sorting out competing claims and concerns.  Media funding will quickly become a political circus—and another front in the ongoing Culture Wars.

Here’s another concern: Will this scheme lead to more or less media competition?  It would be misguided to argue that such a tax system couldn’t fund some quality journalism and even entertainment.  After all, there’s some wonderful stuff on the BBC.  But without having run the numbers for all countries, there seems to be a correlation between the level of government investment in media and the overall number of media outlets at the public’s disposal.  When visiting Europe, one is struck by how even the largest European countries have so few choices compared to what we have here in the States, and that’s true across media (video, audio, print, online).  Could that be because government spending / investment in media has had a crowding-out effect on private media?  That possibility is at least worth considering as some look to broaden public support for media here in the U.S. Government simply doesn’t have a very good track record of creating innovative, competitive businesses and markets.

How the Death of Private, For-Profit Media Becomes a Self-Fulfilling Prophecy

Which leads to a final concern: There’s just a gut-level discomfort many of us would have with the idea of government imposing even more taxes on us to support industries or interests we might find distasteful or not deserving of corporate welfare.  It’s one thing to say that the government should play a role at the margin funneling some money into public broadcasting efforts via the CPB for limited purposes, but it’s quite another to suggest that this should be the new model upon which all media should rest.  That’s essentially what McChesney and Nichols propose in their book, on the grounds that “the old order is collapsing” and private media is dead.

Of course, it’s virtually a self-fulfilling prophecy that private media operators will fail if you impose a smorgasbord of new tax burdens on them and related devices and distribution channels—and then channel the money to “public media” competitors!  As will be discussed in a future installment in this series of essays, taxing advertising is particularly harmful because those taxes come straight out of the advertising revenues upon which most publishers depend for their lifeblood.

But raising prices of innovative consumer electronics like readers ( e.g., Amazon’s Kindle, Barnes & Noble’s Nook, Sony’s Reader or Apple’s iPad) and the wireless broadband services that connect them isn’t such a bright idea either at a time when traditional publishers are hoping that new media distribution and consumption technologies will also allow them to experiment with new business models (like selling subscriptions for magazines or newspapers tailored for these devices).  Unlike the British annual license fee, a tax imposed at the point of purchase would discourage users from buying new devices.  This, in turn would slow adoption of new technologies and retard innovation in a market that has seen consumers move increasingly towards replacing their old devices every few years, due to the constant increased in processing power and functionality made possible by Moore’s Law.

Taken together, these tax proposals are a sure-fire way to achieve McChesney’s true radical end: the destruction of private, commercial media and journalism.  Let’s not forget, after all, that McChesney has argued (during this interview with the Canadian-based “Socialist Project”) that “the ultimate goal is to get rid of the media capitalists,” and that, “unless you make significant changes in the media, it will be vastly more difficult to have a revolution.”[15] And in his book with Nichols, he concludes by noting that “We have responded in a time of crisis not with tinkering reforms but with revolution.”[16]

Indeed they have!  But such radicalism must be rejected if we hope to sustain a truly free press and uphold America’s proud tradition of keeping a high and tight wall of separation between Press and State.  Americans would do well remember to remember the (other) Golden Rule: “Whoever Has the Gold, Makes the Rules!”[17] The more control politicians have over funding media, the more control they will inevitably have over media itself.

Related PFF Publications

• Testimony at FCC’s Hearing on “Serving the Public Interest in the Digital Era ,” Adam Thierer, March 2010.
• Public Option for Press Should Get the Red Pen, Adam Thierer, The Daily Caller, Jan. 2010.
• Chairman Leibowitz’s Disconnect on Privacy Regulation & the Future of News, Adam Thierer & Berin Szoka, Progress Snapshot 6.1, Jan. 13, 2010.
• Socializing Media in Order to Save It, Adam Thierer, City Journal, March 2009.
• A Manifesto for Media Freedom , Adam Thierer & Brian Anderson, 2008.
• Media Ownership Proceedings, W. Kenneth Ferree, Testimony before the Federal Communications Commission, Nov. 3, 2009.
• Media Myths: Making Sense of the Debate over Media Ownership, Adam Thierer, June 2005.

[1] The Pew Project for Excellence in Journalism reports that: “The numbers for 2009 reveal just how urgent these questions are becoming. Newspapers, including online, saw ad revenue fall 26% during the year, which brings the total loss over the last three years to 43%. Local television ad revenue fell 22% in 2009, triple the decline the year before. Radio also was off 22%. Magazine ad revenue dropped 17%, network TV 8% (and news alone probably more). Online ad revenue over all fell about 5%, and revenue to news sites most likely also fared much worse. Only cable news among the commercial news sectors did not suffer declining revenue last year.” Pew Project For Excellence in Journalism, Introduction, The State of the News Media 2010, March 2010, www.stateofthemedia.org/2010/overview_intro.php.

[2] Corporation for Public Broadcasting, FY 2010 Operating Budget, www.cpb.org/aboutcpb/leadership/board/resolutions/090915_fy10OperatingBudget.pdf.

[3] See FTC’s 2008 report, Marketing Food to Children and Adolescents: A Review of Industry Expenditures, Activities, and Self-Regulation, at ES-1-2, www.ftc.gov/os/2008/07/P064504foodmktingreport.pdf.

[4] Adam Thierer & Berin Szoka, The Progress & Freedom Foundation, The Hidden Benefactor: How Advertising Informs, Educates & Benefits Consumers, PFF Progress Snapshot 6.5, Feb. 2010, www.pff.org/issues-pubs/ps/2010/ps6.5-the-hidden-benefactor.html.

[5] Robert W. McChesney & John Nichols, The Death and Life of American Journalism (2010) at 210-11.

[6] Leonard Downie, Jr. & Michael Schudson, The Reconstruction of American Journalism, Columbia Journalism Review, Oct. 20, 2009, at 92, available at www.scribd.com/doc/21268382/Reconstruction-of-Journalism.

[7] Id.

[8] Clarence B. Carson, The Power to Tax is the Power to Destroy, The Freeman, Vol. 26, No. 10, Oct. 1976, www.thefreemanonline.org/featured/the-power-to-tax-is-the-power-to-destroy.

[9] Downie & Schudson, supra note 6 at. 93.

[10] Rosenberger, 515 U.S. 819, 828 (1995).

[11] Regan v. Taxation with Representation of Washington, 461 U.S. 540, 544 (1983).

[12] Gay & Lesbian Students Assoc, 850 F.2d 361, 362 (8th Cir. 1988).

[13] Id.

[14] McChesney & Nichols, supra note 5 at 193-99.

[15] Socialist Project, Media Capitalism, the State and 21st Century Media Democracy Struggles: An Interview with Robert McChesney, The Bullet, Socialist Project, E-Bulletin No. 246, Aug. 9, 2009, www.socialistproject.ca/bullet/246.php.

[16] Id.

[17] The Big Apple, Golden Rule (“He Who Has the Gold Makes the Rules”), June 13, 2009,  www.barrypopik.com/index.php/new_york_city/entry/golden_rule_he_who_has_the_gold_makes_the_rules.

Wrong Way to Reinvent Media Part 1 – Media Taxes [Thierer & Szoka – PFF] http://d1.scribdassets.com/ScribdViewer.swf

By Adam Thierer & Berin Szoka

In a series of upcoming essays, we will be examining proposals being put forward today that would have the government play a greater role in sustaining struggling media enterprises, “saving journalism,” or promoting more “public interest” content. The reason we’re working up this multi-part series is because, with many traditional media operators struggling, and questions being raised about how journalism in particular will be supported in the future, Washington policymakers are currently considering what role government can and should play in helping media providers reinvent themselves in the face of tumultuous technological change wrought by the Digital Revolution.

For example, the Federal Communications Commission (FCC) recently kicked off a new “Future of Media” effort with a workshop on “Serving the Public Interest in the Digital Era.” (The  filing deadline for the FCC’s “Future of Media” proceeding is May 7^th).  Likewise, the Federal Trade Commission (FTC) has hosted two workshops asking “How Will Journalism Survive the Internet Age?”  Meanwhile, the Senate has already held hearings about “the future of journalism,” and Senator Benjamin L. Cardin (D-MD) recently introduced the “Newspaper Revitalization Act,” which would allow newspapers to become tax-exempt non-profits in an effort to help them stay afloat.

Thus, in light of Washington’s sudden interest in the future of media and journalism, we will be taking a hard look at several issues and proposals that are being floated today, including:

• Taxes on media devices, mobile phones, or broadband bills to channel money to media enterprises / content;
• Taxes / fees on broadcasters to funnel support to their public sector competitors or to public interest programs;
• “News vouchers” or “public interest vouchers” that would encourage citizens to channel support to media providers;
• Taxes on private advertising to subsidize non-commercial / public media content;
• Expanded postal subsidies for media mail; and
• Targeted welfare programs for out-of-work journalists or corporate welfare in the form of bailouts for failing media enterprises.

You won’t be surprised to hear that we are generally quite skeptical of most of these ideas, but we promise to give each one serious consideration.  We’ll kick things off tomorrow with our essay on why taxing media devices or distribution systems to fund media content is not a particularly good idea.

Greg Elin (@gregelin) of the Sunlight Foundation schools you on government trasparency in under 5 minutes:

There’s a movement afoot in Congress to advance legislation that would eviscerate the Commerce Clause of the Constitution, empower a state-based tax cartel, and potentially decimate the Internet economy in the process.  Business Week has the details:

In the next week, legislators are expected to introduce bills in the House and Senate promising to do away with the “physical presence” requirement. If a bill passes — and that’s a big “if” — it would require all online retailers, except for the tiniest companies, to collect sales taxes in the 23 states that are part of the Streamlined Sales Tax Project. The states would compensate the retailers for the trouble, while promising not to sue them for tax collection mistakes that are made.

The Streamlined Sales Tax Project, or “SSTP”, sounds good in theory but would be disastrous in practice.   Michael Graham of the Boston Herald penned an editorial about the SSTP today and he does a nice job pointing out why, when it comes to “tax simplification,” the devil is always in the details and those details are typically anything but “simple” (or taxpayer-friendly for that matter).

The real danger of the SSTP, however, is what it means for the Constitution and tax competition among the states.  In this 2003 paper I penned with Veronique de Rugy for the Cato Institute, we showed why the SSTP would not only fail to simplify the sales tax code, but would actually cede dangerous taxing powers to state and local governments over the interstate marketplace.  In the process, Veronique and I argued, a multi-state sales tax cartel would be spawned:

Bringing greater uniformity to the current system may have some positive benefits, such as more straightforward tax administration, but it would come at the expense of tax competition between the states and localities. Moreover, when supporters of the [SSTP] argue for greater uniformity in the sales tax system, they may just be making a covert effort to sustain higher tax rates and expand the current system to incorporate remote vendors on interstate goods and services. But at what cost? The states are essentially proposing to abandon true federalism and jurisdictional tax competition in exchange for the power to potentially recoup a small amount of tax revenue from interstate sales through a uniform system of third-party tax collection. Sadly, it appears that state and local officials would prefer to create a cozy tax cartel instead of relying on a “laboratories of democracy” model of competition between the states. Many analysts have labeled the SSTP proposal “collusive federalism” or “cartel federalism,” because it runs counter to America’s true federalist structure of government and has very little to do with protecting states’ rights. In fact, if a state wants to simplify its sales tax base, it can do so and does not need to reach an agreement with other states.  Federalism is about state independence, not state collusion.

That’s why Congress should never cede taxing authority over interstate commerce to state or local governments. Of course, the Founders taught us this years ago when the tossed out the Articles of Confederation in favor of our current Constitution. They realized federalism was a two-sided coin, and while the states should be left with broad discretion to craft their own tax policies, that authority must end at the state border.  It must so that a free-trade pact among the states can work and interstate commerce can flow freely.  The SSTP would sabotage that.

That doesn’t mean that there is no way for states to constitutionally tax online sales.  As Michael Graham notes, there is an easier solution that would be pro-constitutional and pro-tax competition: An “origin-based” taxing rule:

The fair and obvious solution is to treat every Internet purchase like an ice cream cone on Hampton Beach. The Ben and Jerry’s guy there doesn’t ask where you’re from. For every dollar of ice cream he sells, he collects the same sales tax, period. Why not have Internet retailers do the same? If a business in New Hampshire sells a product, online or at the drive-thru, it always collects the local sales tax. It’s fair — after all, that business and its workers use services the taxes support. And it’s easy — every business already knows how much to collect.

Here’s how Aaron Lukas and I described an origin-based taxing system in a 2001 Cato article:

Most people don’t realize it, but nothing is stopping states from “leveling the playing field” on sales taxes. Each state has the legal authority to tax all transactions that originate within its borders (i.e., an “origin-based” tax). But no state chooses to tax sales that in-state businesses make to out-of-state buyers. In other words, states purposefully exempt their exports from sales taxes. So why don’t states treat all merchants the same by having them collect the local sales tax regardless of where the buyer lives? When you walk into Wal-Mart, checkout clerks don’t ask you where you live; they collect the taxes due where the store is located. We could treat Internet sellers that way. But states fear that a few low- and no-tax rogue states might lure businesses away. Politicians call that a “race to the bottom.”  But it’s really just healthy tax competition.

An origin-based taxing methodology would also have the important added benefit of protecting buyer / taxpayer privacy.  There’s no need for extensive data-collection and reporting requirements that would have to accompany a destination-based taxing rule, as required under the SSTP.

Federal lawmakers should reject the SSTP proposal as an anti-competitive, unconsitutitonal nightmare for our Republic.  If states want to “simplify” their sales tax codes, then by all means, go for it.  But there is no need for Congress to grant them power to extend those taxes outside their borders or, worse yet, do it in unison with other tax officials as part of an interstate tax cartel.   Tax competition must trump tax collusion.

Looks like we can count on another tax landing on our cell phones soon thanks to the taxaholics in the Obama Administration.  According to Jeff Silva of RCR Wireless:

Though details on the Obama budget are few and far between, some information was made available. The administration estimates that spectrum license fees would raise $4.8 billion over the next 10 years.

Don’t be fooled into thinking that wireless carriers will just eat those fees.  Those fees will be coming to bill near you soon in the form of another stupid government tax burden on our wireless phones.

You know, because we’re not already paying enough in taxes on our phones.

(P.S.  I’m actually a little surprised that the “progressives” in this administration would support this proposal since a tax on mobile phones will end up being about as regressive as taxes can get.)