Norquist & Zahourek: Many Misuses of Word ‘Tax’ Hurts Policy Debates

Posted April 2, 2010 at 11:12am

For years, policymakers have attempted to disguise tax hikes using innocuous terms such as “fine,” “fee” or “penalty.” We saw these euphemisms thrown around in the health care debate with the individual mandate “penalty,” employer health insurance mandate “penalty,” and “fees” on tanning salons, drug companies, health insurance companies and medical device manufacturers.

Moreover, the left has used the term “investment” or “stimulus” to refer to government spending, however frivolous. “Network neutrality” is a particularly effective recent creation of language that means the exact opposite of what it says: the termination of the government’s policy of neutrality toward the Internet.

At the state level, we’ve seen “health impact fees” to refer to cigarette taxes, other “fees” of all sundry sorts on everything from rental cars to telephones. These are all taxes of course, but there is a perception that calling it something other than a tax makes it something else. It doesn’t.

But over the last 12 months as the tea party movement has gained steam and Americans are watching taxes and spending more closely than ever before, terms surrounding taxes and spending have been newly subject to abuse. It seems that today everything can be considered a “bailout,” and the word “tax” has become such a term of derision that politicians and lobbyists have been completely unable to resist the temptation to use it when convenient and apply it when it just simply isn’t so.

Legislation being considered in the House and Senate seeks to amend existing law which requires digital radio such as satellite radio, cable radio channels and webcasts to compensate songwriters and recording artists for the use of their music. Currently, terrestrial broadcasters are exempt from paying royalties to the performers of the songs they air because of the perceived promotional value to the artist. The proposed amendments would eliminate the above exemption for broadcasters.

As this debate about whether broadcasters should be required to pay performance royalties continues to grow, so has the rhetoric thrown around by those on both sides of the issue. Specifically, the word “tax” has been wrongly applied to the proposal to remove the exemption covering terrestrial radio.

Regardless of any deficiencies the idea may have (prices should be set by the market, not by the government), what is proposed is not, in fact, a tax but a royalty. The definition of a tax is the transfer of wealth from a household or business to the government. Taxes aren’t voluntary; paying a royalty is. It is completely within the rights of broadcasters to decide not to pay for the use of a performer’s song by simply not using the song. This may not be an ideal option, but these songs actually are the property of someone else. A radio station couldn’t start having actors read someone else’s books over the air or otherwise distribute any other kind of copyrighted material. The same could be said for the owner of a business — say a candy bar maker — who is required to purchase ingredients to make the candy bar even though there could be promotional value for the caramel and nut companies. The candy bar maker can opt not to use caramel and nuts, but compensating someone when you take their property is not a tax on the taker, no matter what reimbursement model has been employed in the past. What the above mentioned legislation represents is a modification in the price control structure as it exists.

Just as dishonest as calling a tax a fee or fine, so too is it wrong to apply the word “tax” to a royalty payment. Creating the negative perception that this legislation creates a new tax may be convenient in the short term and assist opponents in gaining political support; in the long run it is incredibly unhelpful to those who work to reduce the burden of government on our everyday lives.

The fact is this legislation is an example of government’s propensity to insert itself into areas where the market better serves. The real solution is to keep the government out of such transactions, by encouraging broadcasters, recording companies and artists, and other interested parties to continue to negotiate on royalty rates in a free-market setting. We urge all involved parties to work toward a free-market solution that gets the government completely out of the current overregulated, price-controlled environment.

The debate on performance rights is an interesting and important one. But ultimately, it should be made in the marketplace, not in committee rooms in the House and Senate office buildings. But changing the reward structure the government now unfortunately mandates will not constitute a new tax.

Grover G. Norquist is president of Americans for Tax Reform. Kelsey A. Zahourek is executive director of the Property Rights Alliance.