It has become fashionable for high-profile establishment journalists to call for government subsidies to save the newspaper business. It is a terrible idea.

In a 100-page paper commissioned by The Columbia Graduate School of Journalism, former Washington Post executive editor Len Downie  and J-school professor Michael Schudson argue for a package of government aid for newspapers, including both tax breaks and direct subsidies.

The Downie argument, echoed by many others, goes this way: Democracy requires independent reporting, but this news gathering is jeopardized by the Web-driven technological revolution, dramatically changing readership patterns, and the decline of corporate journalism (my phrase, not theirs). As a result, newspapers, in the words of John Nichols and Robert McChesney of the media reform group Free Press, “deserve” government subsidies.

No they don’t. Indeed, I can’t think of any business that deserves government subsidies simply because of what it does. Policymakers obviously disagree since I’d be hard-pressed to think of an industry that is not, in some way, subsidized by government. But this sense of entitlement is both troubling and costly.

When it comes to getting news, the market is speaking—rather loudly. It wants blogs, web-based and cable news, and even direct access to government documents. (Read the bill!!) Increasingly, it doesn’t want daily newspapers, weekly news magazines, or local broadcast news. 

There is no doubt that much of what consumers are getting is rubbish, and I share Downie’s concerns about the effect of  trash news on democracy. Opinion, lies, and comedy are not news, even though they masquerade as such these days. But none of this is new. The history of American journalism is replete with scoundrels, partisan hacks, and country-club publishers taking care of advertisers and fat-cat pals.    
     
I may be a blogger now, but I have spent most of my career writing for traditional print media—newspapers, magazines, wire services, and books. On some level, I find the decline of newspapers very sad, but government can no more stop it than it could save Big Steel or the domestic auto industry. For a similar take, see this piece by Seth Lipsky in the Wall Street Journal.

Downie and Schudson still want to try a menu of subsidies. Among them: making it easier for news organizations to organize themselves as non-profits, and requiring the Federal Communication Commission to create a “fund for local news” that would work something like the endowments for the humanities and arts.

This is TaxVox, so let’s just look at the idea of tax subsidies.

The authors would make “news reporting” an exempt purpose under the Internal Revenue Code. Do we really want the IRS defining “news reporting?”  This gives me serious chills.

While Downie and Schudson want tax subsidies to encourage start-ups, the reality is that such incentives almost always limit competition. The lobbyists for the big players get to help write the rules. The guy with a creative new way to disseminate news from his kitchen table has no lobbyists. As a result, there is little evidence that this sort of industrial policy ever encourages either innovation or job creation.

Technological transformation is scary and while newspapers suffer through their own phase of creative destruction, many good journalists will be hurt. That is very sad, but government intervention isn’t going to help them.

     

 

A basic tenet of public finance holds that people tend to do less of something when it is taxed. Raise income tax rates and some people will work less. Boost the gas tax and people will drive less. Hike the cigarette tax and people will smoke less. That inexorable law of demand poses two problems for the taxman. First, taxes distort behavior as people move from taxed activities to those that are taxed less or not at all. Sometimes, as in the case of cigarette taxes, we want to discourage the taxed activity. In other cases, the tax only makes the economy less efficient. Second, tax avoidance may reduce the revenue gained from a tax increase—or even negate it entirely. For example, if gasoline sales plummet when gas taxes rise, we get less revenue to build and maintain roads.    more »

Describing his financing options for health reform yesterday, Senate Finance Committee Chairman Max Baucus (D-MT) delivered two messages: A) Eliminating the tax exclusion for employer-sponsored health care is off the table and B) He would still like to find a way to curb this hugely expensive and inefficient subsidy. Baucus' bipartisan alternatives for limiting the exclusion cover the proverbial waterfront. Congress could cap the subsidy based on the value of the insurance plan, the income of the policyholder, or both. It could index the cap based on health care inflation, the consumer price index, or growth in GDP. It could “grandfather” existing union-negotiated plans, or not. What Baucus seems to be saying is: I’ll do whatever it takes to reduce the value of the exclusion, even if it is only a small step toward eventual repeal.    more »

Taxes aren’t just for grown-ups. In fact, our new Urban/Brookings study estimates that 40 percent of all federal expenditures spent on infants and toddlers flows through the tax system. That’s more than $22.8 billion. The two main programs that drive this spending are the earned income tax credit (EITC) and the child tax credit (CTC). Although both allocate fairly large percentages (18%) of their total program expenditures to families with infants and toddlers, they differ dramatically in the benefits that are refundable and those that are not. The EITC is fully-refundable, so in 2007 (the most recent year of available data), almost 90 percent of benefits received by families with infants and toddlers ($7.1 billion) came as a tax refund. In contrast, only one third of the partially refundable CTC benefits ($2.8 billion) were refundable, so most of CTC’s benefits reduced tax liability but failed to put cash back into needy families’ hands.    more »

TPC's Eric Toder will be part of an all-star cast tomorrow to discuss tax expenditures. Eric, who did a terrific paper with Len Burman and Chris Geissler on the recent explosion of these provisions, will be joined by Bob Frank, Jim Nussle, Doug Holtz-Eakin, and others. Tomorrow at the New America Foundation from 9:30 -11:30. For more info, click here. It should be interesting. 

    

On March 24, Representative Paul Ryan (R-WI), the ranking Republican on the House Budget Committee, said this about the President’s budget: “Not only are we mortgaging our children's future; we are mortgaging our current prosperity. The President is proposing a gusher of new debt, new taxes, and more spending.” We are, he concluded, “on a massive borrowing, taxing, and spending spree.” The only problem is that Ryan and other Republicans are perfectly happy to propose spending increases of their own, as long as they are masked as tax cuts. The House GOP leadership is proposing a package of massive new housing subsidies, including a $5,000 credit for those who refinance their homes and a $15,000 credit for buyers. I hate to break the news, but these tax credits are spending.    more »

The press has widely reported that the difference between Senate and House stimulus bills is mostly about tax cuts (Senate) versus spending (House). That's wrong. The main difference is about who runs the spending programs-the IRS or program agencies In fact, the Senate bill includes some major expansions in spending--notably, subsidies for car and home buyers--and cuts in others, such as aid to state and local governments. The new Senate spending was presented as tax cuts, but that is simply window dressing. The add-ons are spending programs, and particularly ineffective ones at that.    more »