Spectrum

The electromagnetic spectrum is a finite bit of the natural creation.  In some parts of the country, there isn't enough population density to draw enough broadcasters to fill all the slots on the AM or FM ranges.  But in others, particularly in the largest cities, the right to use a particular bit of spectrum sells for hundreds of millions of dollars. Would you be surprised to learn that the New York metro area has not even a single country music radio station?

From time to time we hear it said that the airwaves belong to the American people.  But the evidence is strong that they do not: they are sold from one corporation to another, at high prices, and the American people receive nothing; only the shareholders (and perhaps the most highly paid managers) benefit. This is a very peculiar kind of privilege.

A better way would be for the commons to own the spectrum, and lease each segment out on a five year lease, with each slot up for bids.  Who would benefit?  The commons — and all of us — because it would provide a fine source of revenue and make real the statement that the airwaves belong to us.  Who would lose?  Corporations, their highest-paid managers and their shareholders, who have succeeded in privatizing this common asset, and get to collect the advertising revenue without passing a share of it to the commons.

Think of the impact on campaign finance reform: a large part of what candidates must pay for is access to the airwaves. 

Joseph Stiglitz: October, 2002, interview

Q: In Globalization and its Discontents, you write (p. 81): "But land reform represents a fundamental change in the structure of society, one that those in the elite that populates the finance ministries, those with whom the international financial institutions interact, do not necessarily like."

JES: Yes. Let me try to approach the question a little more systematically. Once you take the perspective I just gave, that means the management should be done in such a way that it maximizes the amount of money available to the US government from natural resources because they are within its domain and control. So, looking at the United States, one of the implications of this is that a foundation such as yours [the Robert Schalkenbach Foundation, created to promote the ideas of Henry George, as expressed in Progress & Poverty] ought to be very much against the policies of the US government of giving away our natural resources. Here is a case where we not only are not taxing it much, we're actually giving it away.

Q: I assume you're speaking in particular of oil and mineral rights, but would not Broadband Spectrum rights also be included in that category?

JES: Yes, Broadband Spectrum rights as well. Now, giving away rights such as those would be anathema to the spirit of Henry George. And the second part is that when you sell them, you want to do so in such a way as to maximize the revenues. And whether you decide to sell it or whether you decide to rent it, would be the question of what is the way that maximizes the extraction of public revenues.

Q: And those revenues go to the people. Not to private concerns.

JES: Exactly. So you're trying to say, from the perspective of public management, how can we take this inelastic supply of public resources and maximize the rents that we can extract from it, consistent with other public objectives? That is a very deep philosophical approach, and requires a re-thinking of how we manage all aspects of those public resources. However, much of what we do is inconsistent with that. Now, the issue of land reform is a little bit different. There, it's a two-step analysis. My concern that I expressed about land is that in many developing countries, you have most land owned by a few rich people, and the land is relatively little taxed. But the land is worked in a system of sharecropping in which workers have to pay the landlord 50% of their output. In a way, you can look at that 50% as a tax. The sharecroppers are paying a 50% tax to the landlord. But it's worse than a tax. Because it's not a land tax, it's a tax on their labor. And it's a tax that goes to the landlord rather than to society. So the notion is that land reform could take a variety of different forms. For instance, the government could take over the land and rent it to the people. Or give it to the people and have a land tax that would not have the distortionary effect of land reform. So, in a way, these systems of share-cropping are worse even than anything that Henry George was worried about in terms of misuse of land. ...

Q: I wanted to ask your view on the adequacy of land as a tax base. At one time, as you know, there was a "Single Tax" movement, for the purpose of deriving revenues sufficient to run the government solely from land value taxation. In your view, how feasible is that today?

JES: Most economists would say that you cannot run the US economy on the "Single Tax." In my mind, the "Single Tax" is the wrong way to think about it. The question is: "Would it be better if we had more taxation of land and natural resource, and more revenue from natural resource management, and I would include atmosphere and spectrum." And less tax on income and savings. And I would say, "Yeah." And I think many economists would agree with that. So, if you want to sell it as a "Single Tax," then, no, you won't get anyone to agree that there's enough revenue there. If you look at is a more "central" tax, then, yes, you will get most economists to agree with you. ... read the entire interview

Chuck Metalitz: Licenses to Steal Are Expensive

Using financial reports filed by owners of radio broadcast licenses, this Research Note shows that license values are approaching, or may even have reached, such levels. It also shows that the main asset on these companies’ books is their licenses. This means that, while Henry George would recommend that substantially all the rent of these licenses be collected thru taxation, such a policy would be a major inconvenience for such companies.

This paper stems1 from an event last year, shortly before the Des Moines conference. Chicago’s only remaining privately-owned classical music station, WNIB2, was sold for $165 million. Bonneville International Corporation bought the station not because they wanted to continue or improve its operation; what they really bought was a license to broadcast to a market of nearly 10 million people. In fact, they bought the market, at a cost of about $17 per person.

Well, I used to listen to WNIB, and I resented being sold for $17. I wanted to look into the business of broadcast radio, and try to analyse it in Georgist terms. George pointed out that those who could monopolize natural opportunities could exact a toll on users, and that speculation could lead to excessive costs of access which eventually make productive use impossible.

What I found is, first, that the major asset of broadcasters is privilege. Actually, I could have figured that out just by reading the Chicago Tribune3, who quoted the publisher of a radio trade magazine: “These radio stations are a license to steal. They’re gushing oil wells.”

And, second, I found that speculation in broadcast licenses does indeed appear to have reached a point where productive activity is quite difficult, though not yet impossible. One can make money in radio, but it’s mainly done by holding licenses rather than producing programming.  ... read the whole article

Bill Batt: Painless Taxation

Abstract
Real tax reform could do away with those taxes that are resented by the large proportion of our population. We could replace all taxes on wages and on interest by instead taxing economic rent. Rent is windfall income; it is income that arises not from the efforts of any person or corporation; it comes about as a surplus gain from common social enterprise. There is ample moral warrant for society to lay claim to that which it has created, as well as to that which no individual or party has earned. Analysis increasingly makes clear that economic rent in all its forms is far larger than official government figures indicate; in fact it is likely sufficient to supplant all current taxes on labor and capital (wages and interest) which are acknowledged to have so many negative effects. Recovering economic rent in all its manifestations by taxing its various bases actually can foster economic performance and yield other benefits that make it the natural source of revenue for governments. Such a tax is essentially painless. ...

The Possibility of Land (Rent) Taxation

The key to understanding how taxing various forms of land conform to sound tax theory comes with an appreciation of the importance of economic rent. Largely discarded in 20th century economic analysis, rent is the price for the use of land. Just as the price of labor is paid in wages and the price of capital is paid in interest, land rent is the unearned increment that attaches to land in the form of a surplus when its price is not paid by its users. All taxes, ultimately, come out of rent; however, by collecting revenue from other sources, the rent is left to settle in ever increasing encrustations on land sites, i.e., capitalized, ultimately raising their market price. In so doing, these land prices are distorted so that their optimal use is not secured.

Examples of such distortion are not difficult to identify. Consider, first of all, the use of locations in our urban environments, many of which are underused while prospective entrepreneurs are driven to second-best locations because titleholders opt to let the rent accrete and passively raise their market price. Land speculation is rife most of all in instances where there is a great disparity between the tax rate on these sites and the rate of rent appreciation. When the holding costs of ownership are nominal, there is no incentive for improving them or selling to others who will, and urban environments suffer as a result. Another example is rent that collects to the electromagnetic spectrum, making it attractive for owners of electronic media, communications networks and so on, to rely on returns to their investments even when the resource itself is sparsely used. So also with the time slots for take-offs and landings at airports. These opportunities are respected as private property, even while they gain in market value in response to the general traffic volume of the facility. This occurs regardless whether the particular airlines use their slots or not. London Mayor Ken Livingstone has proposed to tax the rent from Heathrow and Gatwick both for their revenue advantage and to assure their more optimal use.[7] One could go on, pointing to any number of instances where economic rent is available to be had for the support of public services in lieu of conventional taxes which we recognize as destructive in their effects.[8] It is not surprising that when pressed even conventional (neoclassical) economists are often willing to concede that the best possible tax of all is one placed on land rent.[9] ...

It should also be noted that a transition to a tax on land rent would not be not difficult. In lieu of the conventional real property tax, it is already widely used,[12] and many localities are presently phasing in such a shift, downtaxing improvements and uptaxing land.[13] As for taxes at other levels of government, it is already conceded, for example, that "The Public Owns the Airwaves," a statement that is belied by the fact that the media and communications industry treats its rights to the use of frequency licenses as private property and whose market value is typically reflected when such corporations are sold.[14] One should also note as another example the case of the Alaska Permanent Fund, which provides a reliable citizen's dividend every year to everyone in that state, derived from oil revenue.[15] Development Administrator Paul Bremer proposed such a design for the new government of Iraq in 2003, a design idea that was also endorsed by the United Nations Association.[16] Many other instances could be cited where already land rent is recovered as a surplus to support public services. ... read the whole article

Nic Tideman: Comments on the NTIA's Comprehensive Policy Review of Use and Management of the Radio Frequency Spectrum

Both for reasons of social justice and for reasons of economic efficiency, site value rating deserves a continued place in the programme of the Liberal Party.

The case for site value rating in terms of social justice is founded on two understandings: first, that the value of land in the absence of economic development is the common heritage of humanity, and second, that increases in the rental value of land arising from economic development and government expenditures should be collected by governments to finance those activities. What is meant by "land" is the unimproved value of sites and the value of extractable natural resources such as North Sea oil.

While there may someday be institutions capable of implementing a recognition of land as the heritage of all humanity on a worldwide basis, in the absence of such institutions each nation should implement a recognition that land within its boundaries is the common heritage of its citizens. This is accomplished not by making the nation a gigantic Common or by instituting government management of all land, but rather by requiring all persons and corporations that are granted the use of land to pay a fee or tax equal to what the rental value of the land they control would be if it were in an unimproved condition.

The case for site value rating in terms of economic efficiency is founded on the fact that a tax on resources that are not produced by human effort is one of the few sources of government revenue that does not reduce incentives for people to be productive. Two other revenue sources that have this virtue are taxes on other government-granted privileges such as exclusive use of radio frequencies and taxes on activities with harmful consequences, such as polluting the air. An economy will be more efficient if revenue sources that do not diminish productivity are employed to the greatest possible extent before any use is made of taxes that impede productivity.

What makes a tax efficient is that the amount of tax that is due cannot be reduced by reducing productive activities. When incomes are taxed, people can reduce the amount of taxes owed by working less. They do so, and the productivity of the economy falls. When houses are taxed, people can reduce the amount of taxes owed by building fewer house and smaller houses. They do so, and the housing shortage worsens. But when the unimproved value of land is taxed, there is no resulting diminution in the quantity of land. Thus taxes can be levied on land without diminishing the productivity of an economy. And shifting taxes from other, destructive bases to land will improve the productivity of an economy.

Subsequent sections explain in more detail these social justice and efficiency arguments for site value rating, describe procedures for implementing such a tax system, and explain why a variety of potential objections are without merit. ... Read the whole article

Mason Gaffney:  The Taxable Surplus of Land: Measuring, Guarding and Gathering It  (for the Duma Hearings in Moscow, 1999)

When the principle that the value of government-assigned opportunities should be received by the public treasury is violated, the result is "privilege," which from its Latin roots means "private law," that is, law that permits one person to do what others are not permitted to do. Thus what we stand for is an end to privilege.

Numerous examples of privilege are incorporated in our institutions.

• Farm legislation restricts the growing of tobacco to those who have been assigned acreage allotments.
• For numerous commodities, trade legislation limits shipments from individual countries to specified quotas.
• In many cities, only persons who have been given permits are allowed to operate taxis, and new permits are not issued.
• To operate a radio or television station requires a license, and there are no opportunities for new licenses to be issued.
• In most cities, construction of commercial or multi-family residential structures requires zoning permission that is granted to some and not to others.
• But the single most important category of privilege is land titles.

This list of examples of privilege, which is by no means exhaustive, contains some privileges, such as acreage allotments and import quotas, that would be best reformed by eliminating restrictions and permitting all to do what now only some may do. For other privileges, such as broadcast licenses and land titles, great productivity results from the social understanding that a specified individual will have the use of a given resource. For these privileges, the best reform is the introduction of the requirement that any person who is assigned such an opportunity must pay to the public treasury an annual fee equal to what the opportunity would be worth to someone else.  ...  Read the whole article

If geo-synchronous parking spaces for satellites are scarce, then each nation that has the use of such parking spaces should include a payment for their market value in the pie to be divided....  Read the whole article

• Often they are “sweetheart” leases, like grazing leases in New Mexico and 16 other western states.
• Aircraft landing “slots” and “gates” are protected by Federal power from local taxes.
• Water “rights” are mostly licenses, hence not real property, hence generally exempt from property taxes.
•  Resort homes and mineral claims and timber cutting rights on Federal lands are “possessory interests,” sometimes not on the tax rolls.
• Licenses assigning radio spectrum are “on” Federal property, hence exempt from local taxes. Read the whole article

Alanna Hartzok: Earth Rights Democracy: Public Finance based on Early Christian Teachings

Jeff Smith: What the Left Must Do: Share the Surplus

In addition to newly awakened resources, many resources long known (like water) are held in odd tenures that have not been recognized as taxable property, although they should be. Any comprehensive move toward using resource rents for public revenue must include these varied resources and tenures. I have a list of 30 or so, too many to treat here. To give a sampling, they include

In tapping these many varieties of resources and tenures for public revenues, citizens and their representatives may have to set priorities. Two practical criteria rise to the top:

• go first for the big values, and
• go for the soft targets.

The biggest values are probably in energy, communications, water, rights-of-way, zoning and street use. Let's just look at what we are learning about communications. Knowledge and entertainment appear both at top and bottom on man's hierarchy of needs. People without even adequate shelter may be seen huddled around tv sets; people in war, or under totalitarian governments, risk their lives to hear smuggled broadcasts. People with higher incomes and security equip themselves with mobile telephones, and call around the world; they rush to get on the information highway. AT&T was the biggest non-financial corporation in the world before splitting up. Newspapers depend on their "wire" services: one of the first Great American Monopolies was Western Union and its news appendage, AP.

Recent FCC auctions have fetched billions of dollars for spectrum licenses, but this is like selling the badlands after giving away the beachfronts. The values of extant licenses given away ion the past, especially spectrum in top locations, are much higher. AT&T recently paid $112.5 billion for the McCaw Company's spectrum licenses, which are a smattering of all that is out there. These licenses should be on the property tax rolls in the jurisdictions that they cover. The revenue possibilities are staggering. ...

Another soft target is the Manhattan taxi license, or "medallion." For some reason this has long been a favorite object lesson among economists, even as they shut their eyes to grosser sources of rent. It may be because cabbies are rude and visible and lower class, but whatever the reasons these writers have shown their consciousness of the rent aspect of medallions, and raised the consciousness of others.

The reason for pursuing soft targets is not for the money they may yield, but for principle. Once the principle is understood and established, wider applications should follow. In economic principle, fishing quotas and taxi medallions are just like conventional land titles: privileged control over limited natural resources. If it makes sense to socialize the rent from quotas and medallions, why not land titles too?  ... Read the whole article

Nic Tideman: A Bill of Economic Rights and Obligations

Article 3: All persons, in all generations, have equal rights to natural opportunities, such as the use of land, natural resources, and the frequency spectrum. Therefore Congress shall place levies on states to equalize among states the per capita annual value of access to natural opportunities, and to compensate for the harmful effects of activities in states on other states and on future generations. State legislatures shall place corresponding levies on their subdivisions.

Nic Tideman: Market-Based Systems for Assigning Rental Value to Land

Extensions to Other State-Allocated Privileges

The central idea of the systems developed here is that the price to be charged to someone who makes continuing use of a state-supplied privilege can be determined by annual offers for corresponding privileges. The idea can be applied not only to land but to other domains as well. One domain that comes readily to mind is use of the frequency spectrum. As with land, effective use of the frequency spectrum (by radio stations, television stations, cellular telephone networks and so on) requires a social understanding that a particular individual or organization is permitted to have exclusive use of particular parts of what is available. (In the case of the frequency spectrum, this means the exclusive right to broadcast in a given frequency band in a given geographical area.)

People who wish to use frequency allocations generally need to be assured that they will have continuing use of the portions of the frequency spectrum that are assigned to them, so that they will not be left with useless broadcasting and receiving equipment. If so few people ever want to use the frequency spectrum that there is never a shortage of band widths to be allocated, then it is perfectly just and efficient simply to permit anyone who wishes to use the frequency spectrum to state the band width he or she wishes to use and then to require others not to interfere. However, if band-width allocations are scarce, then justice requires that those who receive allocations compensate the rest of society for their privileged status. But how much should they pay?

The systems described in this paper can be applied to determine appropriate payments. If one wishes to use a system involving actual transfer of broadcasting rights, then payments can be determined by occasional (secondprice) auctions of the right to use a given band width for a single year. If one wishes to have the greater information that is available with bids for options, then one asks potential users of the frequency spectrum to make binding offers annually on a large number of contiguous band-widths, rewards the highest bidders and uses the highest bids to determine the payments required of continuing users of the frequency spectrum. ... read the whole article

Peter Barnes: Capitalism 3.0 — Chapter 2: A Short History of Capitalism (pages 15-32)

In 1995, Congress decided it was time for Americans to shift from analog to digital television. This required a new set of broadcast frequencies, and Congress obligingly gave them — free of charge — to the same media companies to which it had previously given analog frequencies free of charge. Senator Bob Dole, the Republican leader, declared: “It makes no sense that Congress would create a giant corporate welfare program. . . . The bottom line is that the spectrum is just as much a national resource as our national forests. That means it belongs to every American equally.” But, as they had before, the media companies got their free airwaves anyway.

If an accounting could be made, private appropriations of the commons in America alone would be worth trillions of dollars. The plot is almost always the same: when a commons acquires commercial value, someone tries to grab it. In the old days, that meant politically connected individuals; nowadays, it means politically powerful corporations. What’s astonishing about these takings isn’t that they occur, but how unaware of them the average citizen is. As former Secretary of the Interior Walter Hickel said, “If you steal $10 from a man’s wallet, you’re likely to get into a fight, but if you steal billions from the commons, co-owned by him and his descendants, he may not even notice.” ... read the whole chapter

Peter Barnes: Capitalism 3.0 — Chapter 3: The Limits of Government (pages 33-48)

Numbers can be put on this sort of thing, and Kevin Phillips, a former Republican strategist, has done so. “The timber industry spent $8 million in campaign contributions to preserve a logging road subsidy worth $458 million — the return on their investment was 5,725 percent. Glaxo Wellcome invested $1.2 million in campaign contributions to get a 19-month patent extension on Zantac worth $1 billion — their net return: 83,333 percent. The tobacco industry spent $30 million for a tax break worth $50 billion — the return on their investment: 167,000 percent. For a paltry $5 million in campaign contributions, the broadcasting industry was able to secure free digital TV licenses, a giveaway of public property worth $70 billion — that’s an incredible 1,400,000 percent return on their investment.” ... read the whole chapter

Peter Barnes: Capitalism 3.0 — Chapter 8: Sharing Culture (pages 117-134)

At present, there are no such controls. Though the airwaves belong to the people, no public agency limits TV advertising time. Until 1982, the major networks adhered to a voluntary code limiting ads to 9.5 minutes per hour in prime time. Then, profit maximizing took over, and the networks dropped their code. Today, a typical “one-hour” prime-time show has about forty-two minutes of content and eighteen minutes of ads and promotions, nearly twice the advertising intensity of two decades ago. ...

The airwaves, also known as the broadcast spectrum, are a gift of nature that modern technology has turned into a valuable resource. As a medium for sharing information and ideas, airwaves have enormous advantages over paper and wires. The problem in the early days was that signals often interfered with one another. If two nearby transmitters used the same or adjacent frequencies, a radio listener would hear two sound streams simultaneously. America’s approach to this problem (though not Britain’s or Canada’s) was to give free exclusive local frequencies to private broadcasters, subject to periodic hearings and renewal.

The quid pro quo for this gift, according to the Communications Act of 1934, was that broadcasters would serve “the public interest, convenience, and necessity” — whatever that might mean. The airwaves themselves would remain, in theory, public property, with the Federal Communications Commission (again in theory) acting as trustee.

Private broadcasters grew large and profitable under this arrangement. But over time, as their advertising revenues soared, their public-interest obligations declined. In the 1980s, the FCC dropped the Fairness Doctrine, which required broadcasters to air both sides of controversial issues. Educational programming also waned. In the 1990s the spread of cell phones created huge new demand for airwaves. Instead of giving frequencies to cell phone companies for free, Congress wisely chose to auction them, raising billions of dollars for the federal treasury. Broadcasters, however, lobbied hard for more free spectrum, and in 1996 Congress gave it to them, ostensibly for digital TV. This was the $70 billion giveaway I described earlier. Today, digital technology makes it possible for “smart” receivers to pick out only the signals they need. Signal interference thus is, or soon could be, a thing of the past — which makes exclusive licenses unnecessary. The airwaves could be an open access commons with virtually no capacity limits, a possibility that makes broadcasters, phone, and cable companies extremely anxious.

Some broadcasters have another idea. They want to privatize the airwaves, with ownership assigned to them. Under this plan, the free licenses they received for digital TV would become permanent entitlements usable for any purpose. Broadcasters could then sell their entitlements to cell phone companies and pocket the windfall. The big winners would be General Electric (NBC), Disney (ABC), and Rupert Murdoch (Fox). Other beneficiaries would include Pat Robertson (Christian Broadcasting Network) and Lowell “Bud” Paxson (Pax TV). When a reporter asked Paxson why he should receive millions of dollars for selling the public’s airwaves, he replied: “I was a farmer and I got lucky. Now people want to build a mall on my farm. God bless America.”

If Congress treated the airwaves as a common asset, it would lease most of them at market rates for limited terms to the highest bidders. The billions of dollars thus raised could buy free airtime for political candidates, fund noncommercial radio and TV, and help sustain the arts.

Alternatively, Congress could turn the airwaves into an open access commons like roads and streets. Using technologies like wi-fi (wireless fidelity), everyone could enjoy high-speed Internet access for almost nothing. As of early 2006, nearly 150 U.S. cities were deploying or planning public wi-fi networks. These efforts are hampered by the fact that the frequencies allotted to wi-fi don’t travel as far, or penetrate buildings as well, as do the frequencies given to broadcasters. A bill to open unused TV channels for wi-fi has been introduced by a group of senators, but it faces stiff opposition from broadcasters, telephone, and cable companies. ... read the whole chapter

Charles B. Fillebrown: A Catechism of Natural Taxation, from Principles of Natural Taxation (1917)

Q22. What is privilege?
A. Strictly defined, privilege is, according to the Century Dictionary, "a special and exclusive power conferred by law on particular persons or classes of persons and ordinarily in derogation of the common right."

Q23. What is today the popular conception of privilege?
A. That it is the law-given power of one man to profit at another man's expense.

Q24. What are the principal forms of privilege?
A. The appropriation by individuals, or by public service corporations, of the net rent of land created by the growth and activity of the community without payment for the same. Also, the less important privileges connected with patents, tariff, and the currency.

Q25. Where in does privilege differ from capital?
A. Capital is a material thing, a product of labor, stored-up wages; an instrument of production paid for in human labor, and destined to wear out. Capital is the natural ally of labor, and is harmless except as allied to privilege. Privilege is none of these, but is an intangible statutory power, an unpaid-for and perpetual lien upon the future labor of this and succeeding generations. Capital is paid for and ephemeral. Privilege is unpaid for and eternal. A man accumulated in his profession $5,000 capital, which he invested in land in Canada. Ten years later he sold the same land for $200,000. Here is an instance of $5,000 capital allied with $195,000 privilege. This illustrates that privilege and not capital is the real enemy of labor.

Q26. How may franchises be treated?
A. Franchise privileges may be abated, or gradually abolished by lower rates, or by taxation, or by both, in the interest of the community.

Q27. Why should privilege be especially taxed?
A. Because such payment is fairly due from grantee to the grantor of privilege and also because a tax upon privilege can never be a burden upon industry or commerce, nor can it ever operate to reduce the wages of labor or increase prices to the consumer.

Q28. How are landlords privileged?
A. Because, in so far as their land tax is an "old" tax, it is a burdenless tax, and because their buildings' tax is shifted upon their tenants; most landlords who let land and also the tenement houses and business blocks thereon avoid all share in the tax burden.

Q29. How does privilege affect the distribution of wealth?
A. Wealth as produced is now distributed substantially in but two channels, privilege and wages. The abolition of privilege would leave but the one proper channel, viz., wages of capital, hand, and brain.

... read the whole article