Monday, October 31, 2016

Pirated CDs Still a Costly Copyright Problem

An October 30 article in the Wall Street Journal [subscription required] regarding the extent to which pirated CDs sold on the Internet unjustly harm artists and record labels is well worth reading. Here's the beginning:
"Even in the digital era there are plenty of music fans who still buy old-fashioned compact discs for more than $10 a pop. But the money that shoppers have been spending on CDs lately hasn’t necessarily been going to the artists and record labels who created the music.
In the latest challenge for the battered music industry, pirates are flooding Inc. and other online retailers with counterfeit CDs that often cost nearly as much as the official versions and increasingly are difficult to distinguish from the real goods."
More needs to be done to stop, or at least greatly reduce, such piracy.

Thursday, October 27, 2016

Maryland Spending Continues to Outpace Revenue

This week, The Washington Post published an article discussing the need for fiscal reform in Maryland. Amelia Chasse, a spokeswoman for Governor Larry Hogan, stated: “Over the past year, our state has experienced solid revenue growth of 3.5 percent, but as reported today by the legislature’s own budget analysts, spending growth continues to outpace revenue growth.” With Maryland facing a budget shortfall of hundreds of millions of dollars, Warren G. Deschenaux, Executive Director of the Department of Legislative Services, said that Maryland policymakers need to “get real” and “look at what is driving our spending upwards.” Ms. Chasse also said that Governor Hogan looks forward to working with the General Assembly to address Maryland’s spending problem. In an October 2016 blog, Free State Foundation President Randolph May called for compromises between Governor Hogan and the General Assembly to lessen the burden of Maryland’s tax and fiscal policies.

Tuesday, October 25, 2016

Maryland and Other States Must Reduce Wireless Tax Rates

On October 11, 2016, the Tax Foundation published a report entitled “Wireless Tax Burdens Rise for the Second Straight Year in 2016.” According to report authors Scott Mackey and Joseph Henchman, wireless tax rates have increased to a record high 18.6% for the average U.S. consumer. Wireless consumers are paying an estimated $17.2 billion in taxes, fees, and government surcharges. And while average wireless bills have been dropping since 2008, consumers have been unable to enjoy the benefits because “taxes are growing at a rate twice as fast as average wireless prices have been falling.”
Wireless services have raised living standards for low-income Americans, offering them flexible low-cost connections to the rest of the world. Wireless communications provide low-income Americans cost-effective means for accessing health, transportation, and education services. However, burdensome state and local tax rates on wireless connections increase costs for low-income Americans who access these valuable services.
At the end of 2015, more than 64% of all low-income adults subscribed only to wireless voice services, whereas more than 48% of adults overall were wireless only. Wireless taxes and fees disproportionately harm low-income consumers because the taxes they pay represent a higher percentage of their income compared to middle and high-income consumers. With a federal Universal Service Fund rate of approximately 6.64%, state and local governments account for the remaining 11.93% of tax burden for the average American wireless consumer. These heavy taxes make it more likely that low-income consumers will drop wireless services. State and local governments must alleviate these disproportionate harms affecting low-income wireless consumers. For low-income adults who currently have no connection, a reduction in state and local wireless tax rates likely would encourage them to connect wirelessly.
Of course, all wireless consumers are harmed by record-high wireless tax rates. Artificial price increases from taxes reduce consumer demand and thereby reduce network investment. As Mr. Mackey and Mr. Henchman explain: “The reduced demand impacts network investment because subscriber revenues ultimately determine how much carriers can afford to invest in network modernization.” The authors add, “Higher taxes on wireless service, coupled with increased taxes on wireless investments, may lead to slower deployment of wireless network infrastructure, including fourth generation (4G) and fifth generation (5G) wireless broadband technologies.”
In Maryland, the wireless tax burden is severely harmful to consumers. Maryland and its localities charge up to five different taxes on a consumer’s monthly wireless bill. All combined, average wireless consumer tax burdens in Maryland far exceed the state’s general sales tax rate of 6%. Including Washington, DC and Puerto Rico, Maryland has the 15th highest combined wireless tax rate at 19.47%. But among Maryland’s neighboring states, Delaware ranks only 48th with a 12.98% combined rate. Meanwhile, Virginia is 47th highest with a 13.36% combined rate, and West Virginia is 46th highest with a 13.36% combined rate.
In particular, Baltimore has notoriously high wireless taxes. Baltimore charges a $4 tax per line per month. Therefore, the taxes on a basic $100 per month family plan of 4 lines would add almost $30 extra a month. (See chart below.) With the second highest combined wireless tax rate in the country – only Chicago ranks higher – Baltimore should reduce its wireless tax rates immediately in order to improve opportunities for its residents to cost-effectively access wireless services. More generally, Maryland should lower wireless tax rates to enhance opportunities for wireless providers to invest in statewide networks.
Table 6: Wireless Taxes and Fees on Multi-Line Plan in Selected Cities, July 2016
Federal, State, and Local 
Tax on 4 line plan @ $100 per month
Tax Rate
Chicago, IL
Baltimore, MD
New York, NY
Philadelphia, PA
Omaha, NE
Seattle, WA
Providence, RI
Tallahassee, FL
Kansas City, MO
Los Angeles, CA
(Source: Scott Mackey and Joseph Henchman, “Wireless Tax Burdens Rise for Second Straight Year in 2016”)
In an October 17 blog post, Free State Foundation President Randolph May discussed ways that Maryland Governor Larry Hogan can improve his fiscal record. Governor Hogan’s two-year record of reducing taxes and fees and proposing to eliminate unnecessary regulations provides a strong start. The time is now right for the Governor to work with the Maryland General Assembly to reduce the tax burdens that wireless consumers experience on a monthly basis.
All state and local governments that burden their wireless consumers with heavy taxes should think twice about the harms being visited disproportionately on low-income consumers. State and local governments – including Maryland’s – should also recognize the negative impact that excessive and discriminatory taxation has on consumer demand and on network investment. High taxing states and localities should significantly decrease wireless tax rates to encourage more wireless connections for consumers of all income levels and more investment from wireless providers.

Monday, October 24, 2016

Thinking Things Through IX - The FCC As An Independent Agency

On October 11, the Court of Appeals for the D.C. Circuit held that the Consumer Financial Protection Board (CFPB), as currently structured and as operated in practice, is unconstitutional. Deservedly, the decision, received considerable attention, for as Judge Brett Kavanaugh declared in the opinion’s opening sentence: “This is a case about executive power and individual liberty.”
Judge Kavanaugh’s opinion warrants close attention not only by those interested in the fate of the CFPB, but by FCC-watchers as well. This is because of what the opinion says about the way the FCC, as one of the so-called independent agencies, is intended to operate in order to be constitutional.
In short, the D.C. Circuit held that the CFPB is unconstitutionally structured because its single Director, Richard Cordray, is not accountable to the President because he cannot be terminated at the pleasure of the President. Judge Kavanaugh proclaimed that Director Cordray, operating as a one-person “independent” regulator, enjoys “more unilateral authority than any other officer in any of the three branches of the U.S. Government, other than the President.” As the court emphasized, Article II of the Constitution “lodged full responsibility for the executive power in the President of the United States, who is elected and accountable to the people.” To save the entire CFPB from being thrown out lock-stock-and-barrel as unconstitutional, the court held that Mr. Cordray must be made accountable to the President by submitting to the President’s supervision and, like other officers in the executive branch, by serving at the President’s pleasure.
I’ve long held the view that the FCC and other independent agencies, with their blend of quasi-legislative, quasi-executive, and quasi-judicial powers, and with their commissioners subject to removal by the President only for cause rather than at will, occupy a shaky position in our tripartite constitutional regime. And, like Judge Kavanaugh, I have observed many times that “the independent agencies collectively constitute, in effect, a headless fourth branch of the U.S. Government.”
But, for present purposes, I don’t want to argue about the constitutionality of the independent agencies like the FCC. That question, at least for now, has been settled by the Supreme Court’s landmark decision in Humphrey’s Executor v. United States (1935), when the Court upheld the constitutionality of the Federal Trade Commission.
Instead, I want to highlight what Judge Kavanaugh, in the D.C. Circuit opinion, said about the independent agencies by way of distinguishing them from the unconstitutional structure and operation of the Consumer Financial Protection Board. First, he pointed out that, to mitigate the risk to individual liberty from unchecked power, “the independent agencies, although not checked by the President, have historically been headed by multiple commissioners, directors, or board members who act as checks on one another.”
To put a fine point on it, Judge Kavanaugh declared: “In other words, to help preserve individual liberty under Article II, the heads of executive agencies are accountable to and checked by the President, and the heads of independent agencies, although not accountable to or checked by the President, are at least accountable to and checked by their fellow commissioners or board members.” (Last emphasis supplied.)
Second, Judge Kavanaugh observed, quoting Humphrey’s Executor, that each independent agency traditionally has been established as a “body of experts appointed by law and informed by experience.”
Third, Judge Kavanaugh emphasized that the Humphrey’s Executor Court found it significant that the FTC was intended to be “non-partisan” and to “act with entire impartiality.”
So, here’s the important point for purposes of thinking things through: All of the characteristics recited above, considered separately and collectively – that is, a non-partisan multi-member body of experts informed by experience, acting with entire impartiality, and serving as a check upon each other – presumably were crucial to the Supreme Court’s finding that independent agencies like the FCC and FTC are constitutional.
It might surprise you to learn that I don’t intend here to lay out a case suggesting that, over the last couple of years, at times the FCC has departed in significant ways from adherence to the criteria that led the Humphrey’s Executor Court to sustain the constitutionality of agencies like the FCC – even though I do think such a case can be made. You can engage in that exercise as a mind game yourself if you wish.
Instead, the point I want to emphasize now, in thinking things through, is that the more the FCC deviates from the Humphrey’s Executor criteria, the less constitutional support it enjoys for its actions. In other words, the more the FCC deviates from the Humphrey’s Executor criteria, the more the agency’s constitutional veneer, as part of the “headless fourth branch” of government, wears thin.

Friday, October 21, 2016

FSF To Celebrate Its Tenth Anniversary!

This past June the Free State Foundation celebrated the Tenth Anniversary of its founding. In ten short years FSF has become one of the nation's leading, most respected think tanks promoting free market-oriented, property rights-protective, and rule of law policies, especially in the communications law and policy and intellectual property areas.
Please join FSF celebrate the Tenth Anniversary of its founding at a gala celebratory lunch on Wednesday, December 7, 2016, from 11:45 a.m. to 2:15 p.m. at the National Press Club in Washington, DC. A complimentary lunch will be served, but you must register to attend.

Monday, October 17, 2016

Cato Report Gives Governor Hogan Room for Improvement

Earlier this month, the Cato Institute published a report by Chris Edwards entitled Fiscal Policy Report Card on America’s Governors 2016.” The report analyzes state spending, taxation, and revenue policies and grades each governor on his or her record. Maryland Governor Larry Hogan received an overall grade of C, scoring a 54 out of 100. More specifically, he received a 49 for his spending record, a 48 for his tax rate record, and a 65 for his revenue record.
Although Governor Hogan’s scores are not outstanding, overall he was just one point below a B grade. And, notably, he ranked higher than all of Maryland’s neighboring governors. Delaware Governor Jack Markell received a 45 (D grade), Pennsylvania Governor Tom Wolf received a 24 (F grade and the lowest score of all the governors), Virginia Governor Terry McAuliffe received a 49 (D grade), and West Virginia Governor Earl Ray Tomblin received 45 (D grade). 
Despite Governor Hogan's “high C” overall score, Mr. Edwards’ narrative explanation was fairly positive:
Larry Hogan won an upset victory in November 2014 in this Democratic-leaning state. Governor Hogan has gained a high favorability rating in polls, and he has nudged Democrats in the legislature toward spending restraint and tax relief. In one popular move, he repealed the “rain tax,” which was a new stormwater fee enacted by the prior governor. Another popular move by Hogan has been to use his executive authority to cut highway tolls and fees for many state services.
In 2016 Hogan proposed a package of tax cuts for families and businesses. The plan would have reduced taxes on seniors and low-income families, and also reduced business fees. Furthermore, it would have cut taxes on manufacturers, but in a complex way. New manufacturing firms in some regions would be exempt from the income tax for 10 years, and employees of those firms would also get tax breaks. The legislature did not pass the plan, and such micromanagement of tax relief is misguided. Hogan should instead focus on cutting taxes broadly by dropping Maryland’s 8.25 percent corporate income tax rate.
Less than two years into his term, Governor Hogan has time left to improve his first term fiscal record. He has shown great promise with several of his proposals, including his proposals to reduce taxes and fees and eliminate unnecessary regulations. With the help of some much needed compromises on the part of the Maryland General Assembly that evidence greater receptivity to Governor Hogan’s less taxing fiscal policies, his record likely will improve by the end of his first term.