Chicago Rages Against The Future With 9% Tax On Netflix, Spotify And Other Streaming Services

from the tax-the-future dept

Almost exactly three years ago, Mike wrote up a post that discussed Planet Money pulling together five economists with differing political views to see what they could all agree on. The result was several policy ideas that appeared to transcend politics if economics was the driving motivator instead of any kind of partisanship. The whole post is awesome, and has influenced my thoughts on economic policy and taxes to a large degree, but I came away from it with one general concept firmly in mind: tax what you want to discourage, don't tax what you want to encourage, and never tax innovation or the future.

And now my home city is taxing the future. You see, the city of Chicago recently announced that it will extend its 9% amusement tax to online streaming services and cloud computing.

A ruling by Chicago’s Department of Finance allows the city to add an extra nine percent tax onto “electronically delivered amusements” and “nonpossessory computer leases.” In an odd combination, buying a subscription to streaming media, such as Netflix or Spotify, would qualify, as would using a cloud computing platform, such as Amazon Web Services. Each would be subject to 9% tax; Chicago is the first major American city to levy a tax on either streaming services or cloud computing services.

Amusement taxes in and of themselves generally violate the concept I highlighted in the opening. After all, if you're a municipality, taxing fun is essentially saying you want less fun. But what makes this re-write of the amusement tax already on the books silly is that it is purely a money-grab. Here's what happened: the amusement tax in Chicago worked primarily to collect revenue from book stores, music stores and movie rental stores, which are obviously becoming increasingly in short supply as consumers move to online stores and streaming services like Netflix and Spotify and Amazon for all of the above. This is actually a good thing from a public interest standpoint for a variety of reasons: less pollution from physical products, more efficiency in the marketplace, the opening of more creative outlets for members of the city, and more access to more content from more places and devices, meaning a more robust economic marketplace. The future, in other words, although increasingly the present as well. And Chicago wants to tax all this, effectively discouraging its use, in order to collect an additional $12 million a year.

Chicago, mind you, is in the hole for roughly one hundred times that amount.

Cities with amusement taxes have lost revenue as more people forgo book stores, record shops and video rental stores in place of online outlets. But $12 million isn’t going to be much more than a drop of water in the bucket of the city’s $1 billion operating shortfall.

Fighting the future doesn't even yield much of a reward, so why do it at all? Don't tax what you want to encourage and tax what you want to discourage. This makes it look like the city of Chicago really wants a tax policy to make the city operate like it was 1995.

Filed Under: chicago, entertainment, internet, streaming, tax
Companies: netflix, spotify

Netflix/CRTC To Showdown Over Confidential Business Information The Government Refuses To Protect

from the northern-fights dept

We recently wrote about recent developments in Canada regarding the Canadian Radio-Television and Communications Commission looking to apply the same "culture tax" to Netflix and other internet services as is done to broadcasters of television programming. In case you're not aware, there are taxes in place in Canada, which broadcasters of mostly foreign (read: American) programming are required to pay, that go into a fund supposedly used to create more "Canadian" content. If that sounds strange and convoluted to you, you're not alone, but more on that later.

It appears as though things are getting a bit testy, with members of the CRTC Commission requesting Netflix hand over data on its subscribers, the content they watch, and hosted "Canadian" content, all while refusing to protect that proprietary information from the competition's eyes. Needless to say, Netflix refused.

A Netflix executive told the country's broadcast regulator on Friday before being ordered to hand over the confidential company information that regulating the internet to help boost Canadian content will only hurt consumers. In an occasionally tense appearance before the Canadian Radio-television and Telecommunications Commission, Corie Wright urged the broadcast regulator to let market forces dictate what consumers can watch.

Chiefly at issue was the Canadian government's refusal to affirm that it would keep Netflix's data confidential. In other words, the government was asking a private company to hand over sensitive business information with no assurance that the information wouldn't then end up in the hands of surely interested competitors. They might as well have asked the company to punch itself in the crotch, for all the sense it makes. All this, keep in mind, is geared towards determining if that committee will levy a tax on Netflix for the sin of having a lot of content Canadian consumers really want. Screw the market forces, just prop up our own culture from the outside.

And that really makes no sense. First of all, if Canadian content is bought and paid for with American dollars, how Canadian is it, really? It's practically begging for cultural diffusion, the very thing the tax is supposed to stave off. And the whole concept leads to some really silly comments, such as:

"Netflix's kind of late-1990s view of the internet as some unregulatable space was dragged into the 21st century and was put on notice," said Carleton University journalism professor Dwayne Winseck, who characterized Wright's appearance as "theatre." "The CRTC has a Broadcasting Act to live up to and Netflix ... has to have a respectful conversation in that light."

Ah, yes, the CRTC wants to pretend that the internet is a walled broadcasting system, like television, and it's Netflix that is living in days gone by? Beyond that, think of this from Netflix's point of view. The CRTC falls under the jurisdiction of the Canadian Parliament. It's government, in other words, answering to the Minister of Canadian Heritage, who is in turn responsible for Canada's arts, culture, media and sport. So, put simply, the part of the Canadian government that is responsible for encouraging the creation of Canadian arts and culture instead is saying, "Fuck it, just make Netflix do it."

And you can understand why. After all, actually doing the work themselves in creating a cultural marketplace, in fostering the Canadian arts, in promoting the education and training of film-makers and artists such that their work is desired by the Canadian public, sounds quite complicated. Telling someone else to do it for you must be much easier.

Filed Under: business info, canada, crtc, culture tax, tax
Companies: netflix

Spain Likely To Pass 'Google Tax'; Makes Paying For News Snippets An 'Inalienable Right' And A New Bureaucracy To Collect It

from the yikes dept

We've covered a few attempts in Europe to create what appears to basically be a tax on Google News for newspapers. These newspapers, who have been struggling to adapt in the modern internet world would like to blame Google News for their own failures, despite the fact that Google sends them traffic. When a court case in Belgium was won by the newspapers, Google simply removed those newspapers from the local Google News... and those very same newspapers freaked out and demanded to be let back in. This, of course, demonstrates the vast hypocrisy by the newspapers here. They know they need to be in Google News because of all the traffic it drives, but they also demand to be paid for it. Google has made it quite easy for newspapers to opt-out of Google News if they really feel like their work is somehow harmed by having Google link to it -- but none of the newspapers use it, because they know how valuable the traffic is. In fact, many of the same newspapers who are complaining are, at the same time, using Google's own tools to improve how they appear in results.

Efforts like the ones in Belgium have happened in France and in Germany, where a new law was passed last year. That law had some loopholes, so now German newspapers are demanding a huge chunk of money from Google.

But the situation over in Spain just got even more ridiculous. Julio Alonso has the details, in which it appears that the lower house of the Spanish legislature has approved a very, very dangerous bill that creates a brand new inalienable right for news publishers to be paid for, via compulsory licenses, any "electronic news aggregation system," which is broadly defined as anyone who shares more than just anchor text with a link. A short summary? You'll have to pay up:

The Spanish law proposal declares that editors cannot refuse the use of “non-significant fragments of their articles” by third parties. However, it creates a levy on such use to compensate editors and declares it an inalienable right (derecho irrenunciable).

The introduction of the inalienable right was done to avoid what happened in Germany. If you are a digital editor that publishes with a copyleft license, like myself, and you minimally understand how the internet actually works, you cannot decide to not charge Google News. It is compulsory. More than a right it is an obligation. Therefore, Google cannot exclude sites requiring payment from Google News. It would still need to pay for those it includes, even if they do not want to be compensated.

Furthermore, such tax, is to be administered by a third party (entidad de gestión) in a similar way to what SGAE (the Spanish RIAA) does with music rights. In this case most likely CEDRO (the entity that collects fees for the use of written text, photocopies and so on). How much it is to be paid and how the proceedings would be split among editors has not being disclosed. Though there is reason to suspect of a distribution just to AEDE members.

To make things even worse, the tax is not even aimed only at Google. It is aimed generally at “electronic news aggregation systems”, and, therefore it includes basically anyone who links with anything more than an anchor text.

It seems worth noting here that collection societies around the globe have been plagued with corruption and other problems, often diverting money from smaller creators to the biggest. And, some of the worst stories come from Spain, where SGAE was accused of mass corruption, involving stealing $550 million from artists. That doesn't bode well for this new "organization."

As Alonso notes, this isn't just directed at Google News, but Menéame, a popular Digg/Reddit-like aggregator in Spain (randomly: we get a fair amount of traffic from that site). But it could also impact Twitter and Facebook where people share links with text. And also a variety of other aggregators like Flipboard, Zite and Pocket.

The fact that it's considered "inalienable" is especially troubling. It basically overrides any concept of fair use, Creative Commons or even public domain material. Furthermore, Alonso notes that a bunch of organizations, including a bunch of other newspapers, are fighting against this, but it didn't seem to matter. A report has warned that implementing this law could cost the Spanish internet industry over a billion euros, and sites like Menéame are already talking about leaving the country. There are rumors that Google might just shut down Google News in Spain over this. But, still, the legislation was pushed through under questionable circumstances:

The law was passed on Congress in a special session in the mid of summer, on the Culture Committee and not on the plenary session, with almost no debate in a very awkward session, with many Congressmen declaring to the press, sometimes unintentionally, that they knew very little about what they were voting.

Despite widespread public and industry (outside the largest Spanish newspapers) opposition to this, Alonso suggests that the bill is still likely to become law. And we'll have yet another disastrous policy for the internet, designed to protect the industry of a few legacy players who failed to adapt.

Filed Under: aggregation, collection society, google news, inalienable right, quoting, snippets, spain, tax
Companies: google, meneame

The $120 Smartphone Patent Tax: Patent Royalties Cost More Than The Actual Hardware In Your Phone

from the innovation-tax dept

Obviously, there have been an awful lot of patent lawsuits in the past few years concerning smartphones and various software and hardware associated with smartphones. The folks over at law firm WilmerHale have now released a paper, which conservatively (and thoroughly) estimates that the patent royalties that need to be paid by smartphone manufacturers currently exceeds $120 per device -- which they note is right around the price of the components themselves (found via FOSS Patents, which notes that the estimates in the paper almost certainly lowball the patent royalties, so they may be much higher). Basically, more than half the cost of making a smartphone these days is in paying off patent holders. The authors of the paper are pretty clear that they don't even have data on many other parts of the smartphone where patent holders have demanded licensing payments, meaning the number is probably actually higher. Though, on the flipside, they admit that some companies likely negotiated lower rates in private than the "headline" rates that were publicly revealed. Either way, the $120 estimate is likely fairly conservative.

Talk about a massive tax on innovation -- that all of us are paying for.

And, of course, many of these fees are going to pure trolls, who have contributed nothing to making actual smartphones. The paper highlights the explosion of troll lawsuits in the past few years: Though, to be fair, some of that is because of the America Invents Act of 2011, which made it more difficult for trolls to file a single lawsuit against multiple defendants, meaning that many started more lawsuits against individual defendants.

Either way, this should be seen as a massive problem. Rather than going towards innovation and better, more affordable products for the pubic, money is going to lawyers and patent trolls who have contributed nothing to society. It's a massive dead weight loss to the economy.

Filed Under: innovation, patent trolls, patents, smartphones, tax

France Tells Apple To Pay Giant 'You Must Be A Pirate' Tax On iPads

from the this-again? dept

French politicians had been pushing for years to extend its infamous "you must be a pirate" copyright levy (tax) to tablets, and it appears that's now in place. Apple has been ordered to pay €5 million for all the copying supposedly going on via tablets. Apple pushed back, pointing out that there wasn't any actual evidence to support the premise that the iPad was used for copying music, but the court basically said "too bad" and "here, pay €5 million while we figure out the amount you'll actually owe:"

Apple argued as follows: the decision was not based on any hard data flowing from a study of actual use and merely replicated a previous decision applicable to mobile telephones, which decision was quashed for failing to properly carve out professional use....

[....] However, Copie France sought an award of a provisional amount, relying not on decision #13 but rather on the general statutory principle that such compensation is due. The Court agreed with this line of reasoning, noting that such principle was enshrined in both domestic and European law. It further noted that Apple, as supplier of the equipment at issue, was indeed the party that owed the levy. The Court thus fixed the amount of the provision at €5,000,000, to be applied against the final sum to be determined for the period between February and December 2011 (and ordered that its judgment be enforceable notwithstanding any appeal).

And, yes, technically, this tax is not supposed to be on "piracy" but on "legal copies" made, but everyone knows that argument is a smokescreen. The whole point of levies has really been to try to compensate copyright owners for copies they can't directly tax. And, while Apple will have to pay up here, you can bet this will end up coming out of consumers pockets, as always happens with copyright levies, which serve to (1) make innovative technologies more expensive and (2) build a giant bureaucracy where not much money ever actually goes back to artists.

Filed Under: copyright, france, ipads, levy, piracy, tablets, tax
Companies: apple

According To MN State Auditors, Success In The Music Biz Means Signing With A Major Label; Not Touring

from the and-if-you're-not-raking-it-in,-you're-not-interested-in-being-successful dept

Have you ever wondered how a tax auditor defines artistic success? Neither have I. In fact, it's probably one of the great unanswered questions, largely due to its status as one of the great unasked questions.

[The only thing I can think of that comes close to this intersection of red tape and artistic expression took place in 1990, when the members of the electronic/experimental rock band Legendary Pink Dots were denied visas to tour the US due to "lack of artistic merit." Apparently, the customs official was not familiar with the obscure rockers, despite a release schedule (32 albums, 52 live albums and compilations) that would choke The Fall.]

Now, we have an answer and it's every bit as awful and ignorant as any collision between a state's revenue service and an indie artist could conceivably be. This story starts out with the artists (married couple Venus DeMars and Lynette Reini-Grandell) being informed that their Minnesota state tax returns for 2009-2011 were being audited.

No one wants to be in this situation, but most people who find themselves facing an auditor are rarely subjected to unsolicited opinions and advice on how to run their businesses/careers better, along with countless flabbergasting statements about their industry in general.

“We’ve had several meetings with the auditor since November, and at the last one he said a preliminary determination had been made that we were hobbyists, not artists, and therefore could not write off our expenses,” said Venus, a visual artist, songwriter, bandleader and performer. “This has been unbelievably demoralizing. He basically is saying that if we really knew what we were doing, we should have been more profitable by now, and should have known to give up.

Charming. Apparently, Venus and her partner aren't successful enough to write off expenses. I guess that's a privilege left to artists with real careers and real expenses to write off. The auditors made the claim that any deductions for touring expenses were nothing more than the couple trying to write off personal vacations. Why would they draw this conclusion? Because they understand nothing about touring.

They also really don’t like that I tour. They say I tour way too much and that really, my name is already out there enough, after all this time in the business, there is now no need to do any promotional touring. I have this statement in writing. I attempted to show them, and tell them that this was the industry standard, approved, well-documented, way to build one’s fan base, to expand on it, to inspire interest in one’s work because of the direct contact one has with an audience. They replied that there’s no reason to return to the same cities and venues, and that I’m wrong, that I’m really touring only for pleasure and recreational reasons.

After "all this time in the business," the Rolling Stones are still touring. Perhaps they should stop. After all, their name is "already out there enough." Touring is the expectation when you're a musician. It can be a lifetime experience for some. Hopefully, these artists aren't a.) Minnesotans or b.) writing off touring expenses. (Nothing says "vacation" like a panel van full of equipment, band members and BO making a 6-hour run across the state on less than 2 hours of sleep. Relaxing!)

So, according to reps from the Minnesota revenue service, Venus DeMars hasn't achieved enough success to justify listing "artist" as an occupation, but is too successful to gain anything by touring. As an ideal, "success" is a pretty vague term. How do tax collectors define success in the music biz?

The tax guy said that by this point in my career I needed to be signed by a major label, that I should have been signed to a major label by now, that I needed to be signed to a major label to establish myself. [He said that] there was no evidence that I was actively sending my records to major record labels, so therefore I must not be interested in profit, and not running a for-profit business.

How delightfully old school. You can't spell success without the letters EMI (or UMG). While some musicians may not feel they've "made it" until they've signed away their rights to their creations signed with a major label, it's been a long time since the two terms were inseparable.

What we seem to have is someone (or someones) who don't understand the realities of the music business setting arbitrary ground rules on what constitutes a career in the music field, or at least what defines a career in terms of acceptable tax writeoffs. Touring is unimportant but a major label contract is everything. The auditors also made the claim that because DeMars allowed her music to be used on a public radio network (NPR), it meant she was uninterested in turning a profit.

Her partner, Lynette Reini-Grandell, didn't dodge the entire state vs. art "debate," either. The state's reps also questioned her business acumen as a writer.

The tone of all these proceedings have been completely anti-art. There has been an emphasis on creating a product, advertising it for sale, and then selling it. That’s not how it works on the creative end of literature. Writers need to spend a long time writing, getting feedback, moving up the levels of critique, and then they participate in the publishing industry by sending things out to publishers. One tries for the prominent ones first, gets rejected many, many times, and eventually finds a press and an audience.

Writers do not write a few lines and then advertise they have a poem for sale, making sure that the poem sells at a break-even point of what it cost monetarily to produce it. But this is what the Minnesota Department of Revenue insists I should be doing. It sickens me to have to participate in this because I know it is deeply wrong.

At this point, the state is telling the couple they owe over $100,000 in back taxes, an amount that may include a clawback of issued grants. This assessment seems to be based on the auditors' assertion that the couple simply isn't trying hard enough to make money. Based on what the state's representatives have said, not making enough money is the same as dodging taxes. But, even if you take the hardline and agree with the auditors' that the couples' livelihoods aren't sustainable without significant government assistance, you're still left with some unbelievably bad assumptions by the auditors and even worse career advice, all delivered in a thoroughly condescending manner. If the state is looking to recover these taxes, it needs to apply a more intelligent baseline than "stop touring and sign with a major label."

Filed Under: minnesota, tax, venus demars

CT State Representative Proposes 10% Tax On Mature Video Games

from the unconstitutional dept

Silly reactions to violent video games are coming so fast these days it makes one's head spin. Redundant labeling of games, doubling down on unconstitutional laws, and even special 1% taxes for games with a rating of "Teen" and above... It's quite difficult to parse out the well-intentioned silliness from the grandstanding silliness. What's clear, however, is that there are a great many people who don't recognize games as the speech that they are.

One state representative from Connecticut, home of the Sandy Hook tragedy, is now upping the ante on that last idea and proposing a 10% tax on games that are rated "mature". Here's Rep. Debralee Hovey's idea:

“That the general statutes be amended to establish a sales tax on the sale of video games rated “mature” at a rate of ten per cent on the entire sales price and to require the moneys derived from such sales tax be used by the Department of Mental Health and Addiction Services for the purpose of developing informational materials to educate families on the warning signs of video game addiction and antisocial behavior".

There is more than one problem with this type of legislation, but let's get the most obvious out of the way: it's likely unconstitutional. Courts have held in the past that both limiting violent games, as well as taxing specific types of speech differently than others, fails on constitutional grounds. Hovey's proposal would appear to violate both precedents. But even if that weren't the case, Forbes goes further in explaining how dangerously dumb this is.

This is of course punishing an industry based on conjecture, as no concrete evidence has yet been put forth linking video games and violent actions. The Obama administration’s new gun plans do involve the NHS studying this link, but as nothing is proven (and likely won’t be), video games should not be treated in the same way as a product proven to cause cancer.

I've said this before, but I will say it again: emotion is not a reliable basis for legislature. Ever. Data is what should drive laws and, in this case, the data is at best inconclusive and at worst non-existent. Proposing laws without data to perform the function that is supposed to be performed by parents is the height of a nanny state.

Filed Under: connecticut, debralee hovey, first amendment, tax, violent video games

The Return Of Dumb Ideas: A Broadband Tax To Save Failing Newspapers

from the make-it-go-away dept

RobW points us to an opinion piece over at The Guardian, by David Leigh, who argues that there should be a £2 tax on every broadband connection sent to newspapers in order to prop them up for their own failures to adapt to a changing market place. He tosses out the usual tropes about how only newspapers can do real investigative reporting (what, like hacking voicemails the way Rupert Murdoch's journalists did?). Of course this is a complete myth. First of all, most newspapers do very little investigative reporting -- and UK papers are also somewhat famous for their ability to stretch the truth at times. Is this really something we want to reward?

The idea is hardly original. It's been suggested for years and seems to pop up in random places at random times. While it may be more reasonable than taxing Google to fund newspapers, it's still a horrifically bad idea. Leigh tries to work out how this would work, arguing that the sum would be divvied up among UK newspapers based on their web traffic. Of course, how you measure web traffic suddenly becomes very, very important. Leigh seems to assume this is easy, and that any such system wouldn't be gamed -- which it would. On top of that, he fails to recognize that the second you base such a huge sum of potential money on purely one metric, news sites would optimize solely on that metric, even if they're not "gaming" the system. So, expect plenty of attempts at sensationalistic stories and the like, rather than the thoughtful investigative reporting he thinks they're going to get.

And how do you define who gets access to the money in the first place? Leigh thinks he has that worked out too... but he does not:

There would be no insuperable problems in defining "news providers". The starting point would be to designate those organisations already classed by the state as zero-rated newspapers under the 1994 VAT legislation : "Newspapers … issued at least once a week in a continuous series under the same title … [which] contain information about current events of local, national or international interest. Publications which do not contain a substantial amount of news are not newspapers."

Other original news providers could subsequently apply to the independent levy board for admission to the scheme, case-by-case. But there would have to be a reasonable size threshold for admission, perhaps set at 100,000 monthly users, and also some rules to exclude content aggregators.

Ok, so that starts out by favoring the very companies who have done the least to adapt to changing times and ignores upstarts who have worked hard to build audiences and business models that work. And then you have to "apply" to get access in a long bureaucratic process where a small group of people (probably pulled from newspapers) gets to pick and choose? That's not how you build innovative companies with innovative business models. And, really, why the ban on "content aggregators"? There is this ongoing argument among old school newspaper people who seem to think that "aggregators" are the enemy -- despite the fact that they send original news sites more traffic and more users, and many aggregators expand into original content production themselves as well. Either way, lots of news sites would start applying, just because there's a ton of cash sitting there, and they'd all just start trying to optimize for the metric to get in.

But, of course, the real problem with all of this is the idea that it ever makes sense to tax a new technology to prop up those who failed to innovate, failed to adapt and couldn't compete. If they can't do it, let them fail. Contrary to Leigh's rather myopic view of the world, others will come in to fill the need, and they'll do so with innovative business models that don't require a tax. Really, Leigh's piece is best summed up by the first comment, from user "romandavid" who noted:

"A £2-a-month levy on automobiles could save our horse and cart business."

Exactly. If this got approved, every other disrupted industry would seek the same thing. Record labels? Movie studios? You bet. Travel agents? Absolutely. Really, what industry wouldn't want to add their own "tax" to the internet to try to pretend that we still lived in the 1980s? Thankfully, nearly all of the comments on the article seem to be taking the same general stance, that Leigh's idea is completely ridiculous and self-serving, without any reason or merit.

Filed Under: broadband tax, newspapers, tax, uk

New York City Cooks Up Annoying Plan That Will Pressure NYC Businesses To Buy .nyc Domains They Don't Want Or Need

from the but...-money dept

New York City officials are apparently all excited about a guaranteed $3.6 million "risk free to taxpayers" after signing a deal with a Virginia company to offer .nyc domains. This is one of those things that sounds good until you think it through, and then you realize it's effectively a hidden business tax. NYC gets to promote it as a way for more companies in NYC to have domains, and to identify themselves as NYC-based companies. But for companies already based there, they now need to buy up these domains they don't want or need, just to keep others from buying them up.

To businesses, which only need one website address, new domain names are often a tax they must pay to protect their brand. It’s as if someone printed an alternate copy of the White Pages and asked companies to buy a listing before it was sold to someone else.

In this case, a New York City company like Bloomberg would have to buy Bloomberg.nyc or face having to buy it back at a higher price. Other iconic New York City brands will likely watch nervously to see what becomes names like of “gossipgirl.nyc” or “magnoliabakery.nyc”

The company behind this is asking people to pre-register "for free," but (tellingly) does not share how much the .nyc domains will actually cost once registration opens for real. So while NYC officials can pretend that they've "found" money here, the reality is that they're creating a totally wasteful business tax and a true nuisance for NYC businesses.

Filed Under: domains, gtld, new york city, nyc, tax

Rep. Steve King Decides American Consumers Should Pay For Chinese IP Violations

from the robbing-constituent-A-to-pay-constituent-B dept

Iowa Congressman Steve King has had enough of China's blatant abuse of American intellectual property and has decided that something needs to be done. And that "something" is to introduce a bill that would reward American rightsholders with money taken from the wallets of other Americans:

King's legislation, H.R. 3375, directs the President to impose duties on merchandise from China in an amount equivalent to the estimated annual loss of revenue to holders of United States intellectual property rights as a result of violations of such intellectual property rights in China. Under King's bill, the revenue raised by the imposition of duties on Chinese merchandise will be proportionally distributed to provide compensation to holders of United States intellectual property rights.

This is all well and good except that it's actually neither. Imposing a duty on goods just adds to the cost of the product, a cost that will be borne by Americans. China is not just going to swallow the tariff and feel chastened for its misbehavior. Targeting manufacturers who sell to the US with a "you must be a thief tax" is hardly going to improve trade relations with one of our biggest suppliers. And really, this bill is nothing more than barefaced favoritism which seeks to reward certain industries at the expense of American citizens.

Topping it all off is the fact that this tariff will be based on faulty assumptions and faultier math:

"The creative genius of Americans, protected by our copyrights, trademarks and patents, is systematically being pirated by the Chinese whose government appears to be complicit," said King. "My bill levies a duty on all Chinese imports in an amount necessary to both pay U.S. property rights holders for their stolen intellectual property and to administer the program. In short, it says to the Chinese: 'Go ahead and steal U.S. intellectual property-we will do what you have refused to do and pay American innovators their due from the duties on Chinese goods.'"

Are we Americans (you know, the ones who will be ultimately paying for all of this) also invited to "go ahead and steal U.S. intellectual property?" I mean, we're being assured that the Chinese are footing the bill, or at least forwarding it to us. By King's logic, it should be open season on IP once the bill passes, because the rights holders will still be getting their cut, one way or another.

And as for the numbers? King's bill quotes a Congressional Research Report, which would seem to indicate some sort of fact-finding has occurred. But sadly, no. The report (at least what's quoted on King's site) simply regurgitates inflated numbers provided by the industries themselves:

• The U.S. International Trade Commission (USITC) estimates that U.S. intellectual property-intensive firms that conducted business in China lost $48.2 billion in sales, royalties, and license fees in 2009 because of IPR violations in China.

• The International Intellectual Property Alliance (IIPA) estimated that business software piracy in China alone cost U.S. firms $3.4 billion in lost trade in 2009.

• The Business Software Alliance (BSA) estimates the commercial value of illegally used software in China in 2009 was $7.6 billion, a $900 million increase over 2008 levels.

The USITC report? Oh, you mean the one that was based on pure speculation? The IIPA? Sure, those numbers are solid if you decide to ignore the fact that the IIPA is a lobbying group composed of lobbyists for the RIAA, MPAA and the BSA (among others). And if anyone who regularly reads this site hasn't already laughed off the BSA's "contribution" to the inflated numbers, perhaps this set of posts might shed some more light on the subject.

What we have here is bad legislation based on bad numbers which aims to reward certain Americans while punishing other Americans. Politicians seem to be oblivious to the fact that imposed tariffs and subsidies is just another way to take money out of your constituents' pockets and the end result will be absolutely zero change in the way China handles American intellectual property. This bill is nothing more than King offering to hold down American citizens while IIPA members go through their pockets.

Filed Under: china, intellectual property, steve king, tariffs, tax, us