March 09, 2019
The latest round of layoffs at Buzzfeed, the Huffington Post, and other major news outlets has raised new questions about the future of the traditional model of advertising-supported journalism. While a small number of news outlets, like The New York Times, continue to thrive, few others seem to be profitable in the current environment.
This raises the prospect of a future in which there will be ever fewer reporters to keep the public informed and to scrutinize the actions of public officials and regulatory agencies. While we all recognize the inevitability of abuse and corruption with a regime that bans a free press, we will get the same outcome in a world where the market is structured in a way to make the operation of independent media difficult or impossible.
We can look to structure the market in a way that overcomes this problem. Specifically, we can have a modest individual tax credit ($100 to $200 per person) that can be used to finance journalism and other creative work.
The basic problem faced by news outlets, and other producers of creative work, is that the Internet has made it possible to transfer written material, as well as recorded music and video material, at near zero cost. This means that the condition loved by economists, with the price being equal to the marginal cost, implies that this material would be available for free. If users pay what it costs to deliver a news article, song, or movie over the web, they would pay nothing, leaving no money to support the workers who produced the material.
This problem is not altogether new. The point of a copyright monopoly was to allow the creator of a creative work to charge a price that was well above the marginal cost of transferring material. However, the Internet makes this problem far more serious with the cost of transferring material falling to zero and copyright enforcement becoming ever more difficult. In this context, it makes sense to look to alternative mechanisms.
A tax credit for supporting creative work should not be seen as an altogether new concept. This can be viewed as a variation on the tax deduction for charitable contributions. Under this system, the government effectively subsidizes any charitable organization a taxpayer chooses to support.
The current system is heavily skewed towards subsidizing the charities favored by the rich, both in terms of the size of the subsidy and whether people get it all. The size of the subsidy will depend on a person’s tax bracket. If a person is in the 37 percent tax bracket, the current top rate, the government subsidy is 37 cents for each dollar given. However, with most people falling in a tax bracket paying 12 percent or less, their effective subsidy will be less than one-third of this size.
Furthermore, a person only gets this subsidy at all if they itemize their deductions. With just over 10 percent of taxpayers now itemizing their deductions, as opposed to taking the standard deduction, the vast majority of people will not get any subsidy at all for their contributions to a charitable organization.
The tax credit system would change this situation, with every adult being able to use their tax credit (it would be refundable) to support the creative worker(s) or organization of their choice. However, the current system of tax-exempt 501(c)3 organizations can serve as a useful model.
As with the current system, the IRS can certify that an individual or organization meets the standards to qualify to receive money through the tax credit system. This would simply mean certifying that they are involved in producing and/or distributing, some type of creative work. This can be journalism or music, producing movies, writing books, or other types of creative work.
As is the case now, the IRS would not attempt to evaluate the quality of the work, just as it does not currently try to assess the value of a religion or the quality of a university, when it grants them tax-exempt status. The only issue is whether they do what they claim to do. The point is to protect against fraud.
A further condition, to prevent the most simple type of fraud, with people trading their tax credits, would be to require some minimum be reached (e.g. $2,500 or $3,000 a year) in order to be eligible to receive money through the tax credit system. While it would still be possible to coordinate some sort of kickback scheme, this would require a substantial amount of coordination, and therefore risk, for a very limited potential gain.
The current system actually offers far greater opportunities for such scams. A rich person can give $1 million to her friend’s church. Her friend then hands back the $1 million and they split the $370,000 savings on her income tax. While scams of this sort do happen, they are almost certainly relatively rare, and they would likely be much rarer with the tax credit system.
The other condition for receiving money through the tax credit system would be that a person or organization would lose the opportunity to get copyright protection for their work for a substantial period of time, say three to five years. Creative workers would be allowed to get one subsidy from the government, not two.
If they want to stay in the copyright system and depend on copyright monopolies for their livelihood, they are welcome to do so, but if they decide they would rather go the route of the tax credit system they have to give up this option for a substantial period of time. The three- to five-year lag between getting money in the tax credit system and being eligible for copyright protection is necessary to prevent the tax credit system from being used as a farm system for the copyright system.
We don’t want singers, writers, and journalists developing their reputation in the tax credit system and then moving over to the copyright system to get the really big bucks. If they want to take advantage of the opportunity to be supported through the tax credit system, they should not also expect to get a jackpot from government-granted copyright monopolies.
A nice feature of this mechanism is that it is entirely self-enforcing. If a singer or writer in the tax credit system gets a copyright for which they are not eligible, they will find it impossible to enforce. Anyone would be able to reproduce their work without any payment. If they then filed a suit for copyright infringement, it would only be necessary to show that the person had accepted money through the tax credit system and the case would be immediately dismissed, since the copyright would not be valid.
A massive amount of creative work could be supported through this mechanism. You would get $25 billion a year to support creative workers if there was a $100 credit and 250 million people used it. The figure would be $50 billion with a $200 credit. If we assume an average payment to creative workers of $50,000 a year (this is not necessarily their full pay, since many could do other work, such as performing music live), that would be enough to support between 500,000 and 1,000,000 creative workers.
Could this sort of system save journalism? There is no guarantee since it would depend on what people chose to support with their credits, but journalists should have a pretty good shot under this sort of system. After all, many people do consider journalism important and presumably would be happy to commit part or all of their tax credits for this purpose. It would only take a relatively small share of this funding to fully replace the amount of journalism supported under the current system. (There are less than 33,000 people now employed as journalists by the nation’s newspapers.)
It is also worth asking about the alternatives. Do we want the government responsible for deciding which news outlets get supported? Foundations have supported some important journalistic efforts, most notably ProPublica, but do we really think that a vigorous independent media can be sustained relying exclusively on the goodwill of foundations that are, after all, created by rich people?
This tax credit system would put the power in the public’s hands. If they consider independent journalism to be valuable, it should thrive under this tax credit system. If they don’t consider independent journalism valuable, then we have a really big problem with no obvious solution.
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