One of the news about Trump's proposed budget was elimination of funding for National Endowment for the Arts (NEA), National Endowment for the Humanities (NEH), and the Corporation for Public Broadcasting, which sends some money to PBS and National Public Radio.

Let's leave aside the contentious question of whether federal tax dollars should be used to fund arts/entertainment. Just accept that a large group of people (Hollywood, or entertainment industry in general) thinks that they should; and that the issue is merely a budgetary fiscal one and not political one.

If that's the case, one obvious - though perhaps naive - solution seems to be to offer entertainment industry a deal - the funding does not get cut, BUT, in exchange, entertainment industry (as a whole, or specific sub-industries) get levied a special tax to fully fund that budget line item.

Q: What are the possible drawbacks to such a plan (technical political, or legal or financial)?

(there seems to be a legal and political precedent for this; e.g. levying sin taxes on tobacco producers to cover budget for treating cancer; or levying taxes on medical device manufacturers as part of ACA/Obamacare to help fund it).

Things that are out of scope for this question:

  • Whether federal government should be funding arts/entertainment at all
  • Whether Trump/Republicans would be interested in making such an offer
  • Whether such an offer would be popular with either Trump supporters or opponents and thus politically viable
  • Whether the industry would agree to such a deal
  • Just to be clear when I said "financial" - if the answer is "entertainment industry profits are less than the budget items listed combined", I would accept that as a valid "no, for financial reasons" answer. – user4012 Mar 20 '17 at 19:26
  • Two issues I can think of off the top of my head - (1) what if I'm an entertainment company and I don't believe my tax dollars should be spent on PBS, (2) The funding for this used to be spread out across the country. Now it will be concentrated on a relatively small group. The actual tax rate that would be required for this may be unrealistically high. – David Grinberg Mar 20 '17 at 19:27
  • @DavidGrinberg - (1) while a valid ethical point, this seems like such a rare edge case that in real life it would never affect any decision making by either side. Note that the question didn't ask about ethical/moral drawbacks (2) See my comment above. If it really is unrealistically high and you can show that with convincing data, i'd definitely upvote such an answer. – user4012 Mar 20 '17 at 19:29
  • On (1) I think its not rare at all, there are conservative media companies. In theory those thoughts wouldn't matter for a generic tax, but in this case it would (but it doesn't really matter for the scope of your Q). On (2)It would help if you specify the scope of the entertainment industry. Movie production companies might be obviously part of this, but what about say a makeup company that works on movie sets? – David Grinberg Mar 20 '17 at 19:36
  • 1
    Why was this question downvoted? – Andrew Grimm Oct 23 '18 at 1:40

Q: What are the possible drawbacks to such a plan (technical political, or legal or financial)?

Technical, Legal and Financial

There are a variety of ways that it could be done.

Raise Revenue From The Industry In Exchange For An Appropriation

An income tax provision related to the entertainment industry could be tweaked (e.g. treating sales of partnership interests in movie productions as ordinary rather than capital gains income, or limiting the number of years that entertainment company losses could be carried forward) and an appropriations bill could simultaneously fund the programs.

This would be simple, but up for renegotiation every year in the budget, so it might not achieve the objective.

Create A Larger Revenue Stream From Existing Products

You could also take some of the products of these programs out of the public domain (if they are in the public domain) and charge royalties (or higher royalties) to cable and digital TV and radio services, satellite radio services, etc. (which are required to carry Corporation for Public Broadcasting content under current regulations) and might even get those companies to do so by contract with PBS, NPR, etc. rather than from the government, if this was authorized by law (I don't know if it is or not, but this wouldn't take much political clout to get done).

Of course, this works better for the Corporation for Public Broadcasting than it does for the NEA or NEH.

About 16% of CPB's funding affiliated stations comes from the federal government. It isn't run at a profit (by design), but it isn't completely dependent on federal funds either, unlike NEA or NEH which are much more dependent upon federal funds.

Develop An Excise Tax That Would Go To A Fund Earmarked For The Purpose

Excise Taxes That Were Content Neutral Could Be Imposed

An exercise tax could be imposed in some manner that is content neutral (to satisfy first amendment concerns which have been used to strike down, e.g. taxes particular to newspaper) and could be earmarked for a "fund" for the purpose of financing these programs.

For example, one could impose a $1 or 2% or whatever excise tax on every new radio or music player or television sold in the United States or its territories (both Japan and New Zealand, among others fund their public broadcasting systems in substantial part with excise taxes on TV and radio taxes).

There are currently excise taxes on alcohol, tobacco, liquid vehicle fuels (for highways), oversized tires for large trucks (presumably for highways), airplane tickets (for the FAA and TSA), multiple aspects of the firearms industry, bows and arrows, vaccines (for a vaccine injury fund), and in a variety of industries in support of marketing boards in those industries (although those cases have had mixed results in litigation).

Or Increase A User's Fee That Is Somehow Related

There are also "users fees" for example, for patent and trademark applications, and for copyright registrations. For example, adding $1-2 to the cost of every copyright application to fund these programs would be content neutral and appropriate, and would have the added benefit of funding it out of the legislative branch (the copyright registrar operates out of the Library of Congress), rather than the executive branch.

As of 1999, there were about 600,000 copyright registrations per year for a $35 fee. Even if there are 1,000,000 registrations now, and the fee were $15 per filing, that would still be only $15 million dollars however, which wouldn't be enough to make much of a dent in the funding hole by itself.

One could also attach a special surcharge to copyright enforcement actions in federal court - many state courts finance a variety of low dollar programs that way. There are about 13,000 intellectual property cases a year filed in federal court (many by patent trolls and pornography companies). So even at $100 of surcharge each, that would only be $1.3 million a year, which also would be enough even combined with a registration charge.

Of course, any such program would require the hiring of new federal employees to administer it (although if it piggy backed on something that the federal government already collects funds for like copyright registrations or court filings, this could be very modest).

Result: An Entitlement Program That Is Not In The Discretionary Budget

This would turn these programs from discretionary funding budgets to entitlement programs with their own tax bases.


The Legislative Process

  • Congress is always skeptical of programs that want to have earmarked funds from agencies that don't have to come back for budget approval every year. This undermines their power to control the budget.

  • A program like this one that raised funds and appropriates money has to originate in the House of Representatives, which has few moderates and is more tightly controlled. There is less log rolling in the House than there is the Senate these days.

  • A permanent funding stream would be subject to filibuster in the U.S. Senate in a way that an annual appropriation bill would not be.

Partisan Political Considerations

  • Congress is hot about this program because the way that the funds are spent currently are perceived to favor supporters of one party and ideology and to disfavor another. Unless this perception is remedies, the party that is disfavored is not going to be interested in creating a permanent funding source for it without gaining more control over how the money is spent.

  • The opposition isn't simply to spending money on art and culture and news, it is to spending public funds on liberal art and culture and news, and there is something to that given the track record of how the National Endowment for the Arts (NEA), National Endowment for the Humanities (NEH), and the Corporation for Public Broadcasting, which sends some money to PBS and National Public Radio, have chosen to use their funds.

  • Moderate average people may not be concerns about perceived bias, but partisan on the left and right care a lot about how these symbolic funds are controlled. The move to cut these programs is about symbolic grievances and perceived bias and a result that gets these agencies funded in a manner that causes these agencies to be more apolitical or to try to be more balanced on a liberal-conservative perspective would be considered a win by the partisans on the right.

  • One important downside is that a permanent funding source would cause supporters of the programs to get lazy. These programs work hard to develop bipartisan political backing year after year after year. If they didn't need to do that, they might find that without constant effort, their bipartisan political support might erode. And, a clear majority in both houses backed by a President could easily eliminate the programs, just as they are being eliminated now. Put another way, one of the reasons that arts supporters want public support for this programs is the get politicians to express their support for the arts on a regular basis as a way to culture the politicians and tame them.

A Coalition Of The Willing Alternative

An alternative would be to abandon federal support, privatize the endowments and corporation, and then seek support on a state by state level as a bunch of state organizations that are part of a national network. This could circumvent a reluctant Congress and make a single existential threat like these agencies are facing right now in any one year unlikely since it would have to be coordinated across many states at once.

The "coalition of the willing" approach has been used, for example, to get stronger emissions regulations in the Northeast and California, without having to win support nationwide.

A Check The Box On The Tax Return Approach

A similar approach with a very different mechanism would be to replace the check the box for political campaign funding on tax returns with a check the box for culture funding that would work in the same way.

Only about 5% of taxpayers choose the $3 check off for public campaign funding (which is about $23 million per year because there are about 150 million 1040 tax returns filed each year), but public television, radio, the NEA and the NEH might get closer to the 25-27% percent participation that the check off got when it was started (bringing the take to perhaps $115 million a year), because their programming is probably more popular than campaign funding for politicians.

The existing program isn't popular, it would cost very little to change the beneficiary, and it might ever so slightly even increase tax return filing rates pushing it towards revenue neutral.

Would The Industry Oppose The Taxes Or Fees?

The industries would probably welcome the deal. They have strategic interests in the state of culture and news in the country as well as narrow profit interests, and this deal would probably be perceived as being in their strategic interests.

This is chump change for them and would please the elites in the industry who value these programs. The U.S. entertainment industry has a $655 billion revenue stream. These programs combined cost about 0.1-0.2% of that revenue stream.

  • +1 for sheer effort and detail. Awesome answer! I'll read in detail later and see if I should accept right away or see if I have any quibbles that would warrant waiting for an even better answer :) – user4012 Mar 20 '17 at 21:38

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