Artistic Freedom Voucher

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Alternative proposed to copyright, in a policy paper by Dean Baker of the CEPR.

URL = http://www.cepr.net/content/view/161/

Description

1. From http://www.piratpartiet.se/referenser/the_artistic_freedom_voucher_internet_age_alternative_to_copyrights:

"The artistic freedom voucher (AFV) is an alternative mechanism for supporting creative and artistic work. It is designed to maximize the extent of individual choice, while taking full advantage of the potential created by new technology.

The AFV would allow each individual to contribute a refundable tax credit of approximately $100 to a creative worker of their choice, or to an intermediary who passes funds along to creative workers. Recipients of the AFV (creative workers and intermediaries) would be required to register with the government in the same way that religious or charitable organizations must now register for tax-exempt status. This registration is only for the purpose of preventing fraud - it does not involve any evaluation of the quality of the work being produced.

In exchange for receiving AFV support, creative workers would be ineligible for copyright protection for a significant period of time (e.g. five years). Copyrights and the AFV are alternative ways in which the government supports creative workers. Creative workers are entitled to be compensated once for their work, not twice. The AFV would not affect a creative workers ability to receive money for concerts or other live performances.

The AFV would create a vast amount of uncopyrighted material. A $100 per adult voucher would be sufficient to pay 500,000 writers, musicians, singers, actors, or other creative workers $40,000 a year. All of the material produced by these workers would be placed in the public domain where it could be freely reproduced.

Under plausible assumptions, the savings from reduced expenditures on copyrighted material would vastly exceed the cost of the AFV. Much of this savings would be the direct result of individuals' decisions to use AFV supported music, movies, writings and other creative work in place of copyright-protected work. A second source of savings would be the result of lower advertising costs, since much of the material used in advertising supported media would be in the public domain.

In contrast to copyright protection, which requires restrictions on the use of digital technology, the AFV would allow for the full potential of this technology to be realized. Creative workers would benefit most when their material was as widely distributed as possible. They would therefore have incentives to promote technologies that allow for recorded music, video, and written material to be transferred as easily as possible. By contrast, copyright enforcement is demanding ever greater levels of repression (e.g. restriction on publishing software codes, tracking computer use, and getting records from Internet service providers) in order to prevent the unauthorized reproduction of copyrighted material. The police crackdowns on unauthorized copying by college students, and even elementary school kids, would be completely unnecessary for work supported by the AFV." (http://www.piratpartiet.se/referenser/the_artistic_freedom_voucher_internet_age_alternative_to_copyrights)


2. Marc Weisbrot and Dean Baker:

"The AFV system is modeled loosely on the tax deduction for charitable contributions available to taxpayers in the United States. Under this system, for the purpose of calculating their tax liabilities, taxpayers can deduct a contribution to a registered non-profit organization from their income. This means that the government is effectively subsidizing the contribution by an amount equal to the person’s marginal tax rate. Currently the top marginal tax rate is 35 percent, which means that someone in the highest tax bracket would have 35 percent of any charitable contributions offset by a reduction in their tax liability.

This system of subsidies is highly regressive for two reasons. First, by virtue of the fact that higher income individuals are in higher tax brackets, they get a larger offset for any contributions to charitable organizations. Most households in the United States fall in a 10 percent income tax bracket or don’t have an income high enough to make them subject to income tax. These people would get little or no offset to their charitable contributions. The other reason that this system is regressive is that the wealthier are more likely to be in a position where they can make substantial contributions to charities than poor or middle income families. Many families that are struggling to pay for basic necessities will find it difficult to make any contributions to charities.

The AFV system is far more progressive than the tax deduction for charitable contributions since it would give a fixed sum (e.g. $130 a year or roughly 0.25 percent of per capita income) to every adult in the country to donate to the creative worker or organization of their choice. This should be a payment that could be made independent of whether or not the individual paid income taxes. In other words, it is not a credit against their income taxes; it is a payment under their control.

There will inevitably be opportunities for fraud under the AFV system as there are under any system, but some of the most obvious ways to defraud the system can be eliminated with some simple rules. For example, if a certain minimum level of support (e.g. $2,000 a year) was required for an individual or an organization to receive money through the AFV system, it would be difficult to construct a simple game whereby individuals traded their vouchers with each other. It is of course possible to envision a larger scale fraud where an individual arranged to get vouchers from 20 individuals in exchange for a partial kickback, but this would require a large risk of detection for a relatively small gain. By comparison, a similar kickback operation with a single wealthy individual prepared to give $1 million to a fraudulent tax exempt organization can net $350,000 to be shared between two people. In short, the opportunities for fraud are far larger and simpler with the deduction for charitable contributions that with an AFV system.

The conditions for qualifying to receive AFV money would be similar to the conditions that the Internal Revenue Service (IRS) in the United States requires for organizations to get tax exempt status. To gain this status an organization has to claim to be engaged in one or more of the activities that would qualify for tax exempt status. For example, it has to claim to be engaged in religious activity or providing food to poor people. The IRS does not attempt to evaluate its performance in these activities – it doesn’t determine the quality of a religion or assess the effectiveness of an organization in fighting hunger – it only polices organizations for evidence of fraud. This means that if an organization that qualifies for charitable contributions is audited by the IRS it should be able to identify the work that it has done that is in keeping with its stated purpose. There are also serious restrictions on profit-making activities by organizations that qualify for this special tax status. A church or charity is not generally allowed to also run a for-profit store or television station. Such profit making activities must be kept strictly separate from any related tax exempt organization.

Under the AFV system, individuals or organizations would be required to register with a governmental organization, in the United States either the IRS or some similar equivalent organization established for this purpose. The requirement would be that they clearly identify the type of creative work which they do (i.e. writing, singing, playing a musical instrument, directing films etc.). An organization would identify the type of creative work that they support. As with the rules for tax exempt organizations, the purpose of this registration is to establish a record that can be used to prevent fraud.

A second reason for registering would be that individuals and organizations who receive funding under the AFV system would not be eligible for copyright protection for a substantial period of time (e.g. 5 years) after they received support through the system. The registration would allow everyone to know who had received support under the system and therefore their work could be freely reproduced. The point is that the government has already paid for their work; there is no reason for a creative worker to get a second form of government subsidy in the form of a copyright monopoly. The reason for prohibiting copyright protection for a period of time after a worker receives support is to avoid a situation in which the AFV system is used by the entertainment industry as a feeder system that screens for potentially marketable performers.

If a singer, writer or other creative worker could use the AFV system to develop a following, and then immediately go over into the copyright protected system, the AFV system would effectively be subsidizing the development of stars for the entertainment industry. By requiring a substantial period of time between the end of AFV support and when a creative worker can first benefit from copyright protection, it will be less likely that the AFV system can be used this way. A creative worker would be taking serious risks by abandoning their work for five years and then coming back into the copyright system with the hope that they have maintained their following.

The great advantage of the registry required as part of the AFV system is that the enforcement problem would essentially disappear. The law would be that anyone who was registered under the AFV system could not receive copyright protection for at least five years afterwards. If a creative worker attempted to ignore this rule and get a copyright before the period had lapsed then their copyright would simply be unenforceable. Anyone would be able to freely reproduce their material as though it were in the public domain. Any legal action that they sought to enforce their copyright would be immediately dismissed since they are ineligible for copyright protection.

In this sense the AFV system completely reverses the dynamics of the current copyright system. It is a system that is very easy to enforce. The goal of creative workers and organizations who receive support under the AFV system is to make their work as accessible as possible. Rather than trying to find ways to lock up material behind pay walls, they will stand to get more money out of the AFV system if they take full advantage of all available technologies to disperse their work as widely as possible.

There is no reason that the AFV system cannot exist side by side for a period of time with the copyright system, although if it is successful the AFV may grow at the expense of the copyright system. A successful AFV system would make a vast amount of recorded music, movies, books and other creative work available to the public at no cost. Under such circumstances, it may prove to be the case that people would be less willing to pay for copyright protected material, however the result of this competition would be determined by people's choice. If for some reason people continued to pay for large amounts of copyright protected work and showed little interest in the material that was produced through the AFV system, then presumably funding for the latter would be reduced or eliminated after a period of time.

While it is desirable that individual creative workers can directly raise money through the AFV system, thereby eliminating the costs associated with intermediaries, it is likely that most people would opt to contribute their voucher to one or more intermediaries. In many or perhaps most cases, individuals may not have enough attachment to particular musicians, writers, or other creative workers that they would feel comfortable giving them part or all of their vouchers. However, they may appreciate the work supported by an organization operating within the AFV system.

As a matter of mechanics, there is no reason why people may not choose to divide their voucher among multiple creative workers and/or organizations. That should not pose any major logistical challenges. Also, if some funding stream is targeted, the amount of the voucher can be adjusted in accordance with the number of people who choose to use it. This means that if fewer people opt to use the voucher, then the size of the voucher for those who do use it would be increased to maintain the desired stream of funding.

For example, if an organization had established a reputation for supporting outstanding mystery novels or high quality jazz music then a person who valued mystery novels or jazz music could contribute their voucher in part or in whole to these organizations. The same rules would apply to the organizations and the individuals to whom they distribute funds as to any individuals who receive funds directly through the AFV system. They would have to be registered in the system and would be ineligible for copyright protection for a substantial period of time after receiving AFV funds.

It should also be possible to construct the system in a way that minimized the paper work and payment process. While people could be allowed to make payments directly to a person or organization and then take it as a credit against their taxes, as is done now with the charitable tax deduction, since these payments are a fixed per person amount (as opposed to being dependent on the person’s income) and can only go to a group of individuals and organizations who are registered to receive money, it should be possible for a person to steer their voucher directly to one or more recipients by indicating their choices on their tax forms. This would minimize the difficulty for individuals in taking advantage of the voucher, thereby increasing the take-up rate. " (same source as below)

Overview

The Mechanics of the Artistic Freedom Voucher

The purpose of the AFV is to maximize the degree of individual choice in determining which creative work should be supported, while also taking full advantage of the potential of digital technology. It is designed to be as simple as possible for both the individuals distributing their voucher money, and the creative workers who receive it.


The Taxpayer and the AFV

There would be two alternative mechanisms through which individuals could use their voucher. As one option they could have the funds paid directly by the government to the creative worker or intermediary of their choice, by indicating their selection on a tax form. Alternatively, they could pay an amount equal to the voucher directly to the creative worker or intermediary of their choice, and then file for a refundable credit on their tax return. In this case, taxpayers would be obligated to keep a record in the event of a tax audit, just as they do now for a charitable contribution.

The first method - having the funds directly transferred - would presumably be the alternative chosen by most people. Since every creative worker or intermediary would have to register with the government to be eligible for AFV funds, they would have an identification number that they would promote to potential supporters. A taxpayer could allocate their voucher to one or several individuals or intermediaries simply by using their identification numbers on their tax form.

The second method - being credited for money paid directly - would be an option available to individuals who prefer to keep their allocation private. These individuals could claim their voucher (which would be refundable) simply by indicating on their tax return that they had made a payment to a registered creative worker or intermediary. Taxpayers would be required to keep records in the event that they are later audited, just as is now the case with charitable deductions.


Creative Workers and AFV

The AFV would immediately create a pool of money (approximately $20 billion annually) to support creative and artistic workers that is far larger than the amount that currently flows to them through copyright-protected material. Furthermore, since the current distribution of royalties and related payments is heavily concentrated among a small group of singers, actors, writers and other creative workers, the funding available through the AFV mechanism would dwarf the amount available to creative workers at present through the copyright system, apart from the money earned by this group of elite performers. This means that almost all creative workers would stand to earn far more through the AFV system than through the copyright system.

Creative workers could seek AFV funds directly through promoting their work to potential contributors, and also by contracting through intermediaries. It is likely that there will be a substantial niche for intermediaries in this system, who would funnel AFV funds to creative workers in specific areas (e.g. mystery writers, blues musicians, investigative journalists, etc.). The intermediaries would promote themselves to potential contributors in the same way as creative workers might - presumably highlighting the volume and quality of the work they are supporting.

Both creative workers and intermediaries that channel AFV funds to creative workers would have to register to qualify for these funds. Registration would be comparable to the process that a church or non-profit organization must currently follow to gain tax-exempt status. An individual must indicate that they engage in some type of creative activity, which would in principle be eligible for copyright protection. An intermediary must indicate that they allocate funds to individuals who are registered as creative workers. The information provided with this registration would be subject to verification in the same way that the information filed to gain tax-exempt status is currently subject to verification. The only basis for challenging the registration would be in the event of fraud - evidence that creative workers or intermediaries have not done what they claimed to be doing.

A creative worker who registers to receive AFV funds gives up eligibility for copyright protection for a significant period of time - such as five years - after receiving AFV funds. Copyright protection is a government-granted monopoly. It is one way in which the government compensates creative workers. The AFV is an alternative mechanism. A creative worker has the option to choose either method, but not both. The purpose of the delay between receiving AFV funds and being eligible for copyright protection is to prevent the AFV system from being used as a farm system by the entertainment industry. It would be pointless to use public money to build up the reputations of musicians, singers, actors etc. and then have their work bottled up behind copyright protection.

The restriction on copyright protection for recipients of AFV funds has the great advantage that no public enforcement effort is required. Any copyright that is issued that is in violation of this condition is simply rendered unenforceable. For example, if a singer decides to leave the AFV system, after building up his or her reputation, and then records a copyrighted CD the following year, the copyright holder (the singer or a recording company) would be unable to take any legal action against any person who copies and circulates the CD. The work remains in the public domain. In contrast to the copyright system, the enforcement of which is requiring ever greater levels of government repression due to advances in technology, the AFV system requires no enforcement. (http://www.piratpartiet.se/referenser/the_artistic_freedom_voucher_internet_age_alternative_to_copyrights)

The Economics of the AFV

The AFV will create a vast amount of writing and recorded music and video material, all of which will be in the public domain. Under plausible assumptions, the money that the public saves by using AFV supported material instead of copyright supported material can easily exceed the size of the public grant needed to fund the vouchers.

The arithmetic on this is straightforward. Table 1 lists the amount of money the public currently spends each year on recorded music, movies, books, and broadcast and print advertising. It also includes high and low projections of potential savings due to the use of uncopyrighted material generated through the AFV. These projections are based on a set of assumptions about the extent to which AFV material would substitute for copyrighted material and thereby reduce the cost to the public for each medium.

In the case of recorded music and movies the high savings assumption is that the availability of AFV material would reduce the direct costs to the public of copyrighted material by 60 percent in the high saving scenario and by 20 percent in the low saving scenario. (The reduction in direct costs is due both to the fact that the public is likely to buy less copyrighted material, now that a large body of free material is available, and that the cost of each unit of the copyrighted material [CD or DVD] will be less because it must now compete against material not subject to copyright protection.) The savings in these categories are likely to be especially large, since it is likely that much recorded audio or video material will be transferred at virtually no cost over the Internet.


It is also likely that these savings would grow through time. It is likely that the vast majority of creative workers would end up committing themselves to the AFV regime, since their economic prospects would be much brighter under this system than the copyright system. As the amount and quality of free material rose relative to material subject to copyright protection, it could prove ever more difficult to sustain the copyright system. It is entirely possible that the copyright system would eventually collapse, as few people would be willing to pay copyright protected prices for the material still subject to copyright protection, but this would depend on how successfully copyrighted material could compete in a free market with AFV supported material.

The projections assume much more modest savings (20 percent in the high savings scenario and 10 percent in the low savings scenario) in the case of books, advertising, and cable and pay TV. In these cases, a much higher proportion of the costs are attributable to the physical production and distribution of the material, rather than the compensation of the creative workers. This means that the availability of uncopyrighted material will have less effect on total costs.

In both of the scenarios constructed in Table 1, the savings exceed the cost of the AFV to taxpayers. In other words, if these projections prove to be plausible, then the AFV is likely to save more money than it costs. In the case of the low savings scenario, the projected savings are $28.6 billion, an amount that is 40 percent larger than the $20 billion cost of the AFV. The $65.5 billion savings projected in the high savings scenario is more than three times as large as the cost of the AFV.

It is also worth noting that much of this saving will take the form of lower advertising costs, which will be presumably passed on in lower product prices. The costs imbedded in products due to advertising are in some ways comparable to a tax, since individuals have no choice as to whether or not they will pay them (as opposed to the decision to buy a CD or DVD, which is under the individual's control). The projected savings due to lower advertising costs are $10.9 billion in the low savings scenario and $21.8 billion in the high savings scenario. These projections imply that in the low savings case, slightly more than half of the funding for the AFV would be directly recovered through lower advertising costs passed on in lower product prices, and in the high savings scenario, the savings from lower advertising costs would exceed the revenue needed to fund the AFV.

The AFV will lead to many savings in other areas, primarily resulting from the reduced need to protect copyrights. For example, many colleges and universities are now holding sessions in which they instruct their students on the impropriety of downloading copyrighted music. They also engage in policing activity on behalf of the recording industry, as do Internet service providers. Even ordinary businesses are being called upon to monitor the Internet usage of their employees, in order to prevent unauthorized reproductions of copyrighted material. Government law enforcement agencies have also frequently been called upon to assist in protecting copyrighted material.

While the presence of AFV material would not deny the ability of copyright holders to enforce their copyrights, it would be reasonable to expect that the copyright holders would bear the enforcement cost themselves, rather than transferring this cost to the rest of society. In a world with AFV supported material, it would be difficult to justify some of the more extreme measures demanded by the entertainment industry - for example prohibiting the publication of software codes that can break copyright locks or requiring digital devices to include locks that prevent the reproduction of copyrighted material. If the development of technology is making it difficult to enforce copyrights, then this suggests the need for an alternative mechanism to finance creative work, not a need for greater state repression to sustain an anachronistic system." (http://www.piratpartiet.se/referenser/the_artistic_freedom_voucher_internet_age_alternative_to_copyrights)

Discussion

Dean Baker and Mark Weisbrot:

"With the spread of the Internet and improvements in digital technology, copyrights are becoming ever more difficult to enforce. Music, books, movies and other video material can be transferred instantly at near zero cost. This evolution in technology makes it more difficult to collect royalties on copyrighted material. According to the Recording Industry Association of America (2012), revenues from recorded music in the United States have fallen by more than 50 percent in nominal dollars between 1999 and 2011. Digital competition has led to similar, if less dramatic declines in revenue in the newspaper industry, television industry, and radio industry.

There are two possible directions for policy responses to the development of technology. The first possible route is to strengthen copyright laws, imposing more severe penalties on those who knowingly violate copyright and requiring third parties to play a role in enforcement. This was the direction taken by the Stop Online Piracy Act, a bill that had considerable support in the U.S. Congress before a grassroots effort succeeded in defeating it.1 This bill would have held intermediaries such as search engines and social networking sites responsible for unauthorized copies of copyrighted material that were transferred through their systems. In effect, they would be required to act as copyright enforcement agents.

This first route seeks to use the power of government to fight the development of technology and the workings of the marketin a context where it can provide more social benefits than coercive state intervention. The alternative route is to accommodate the development of technology by seeking new funding mechanisms for creative works that do not depend on copyright. The Artistic Freedom Voucher (AFV) is a proposal within this framework. The goal is to develop a mechanism that ensures that creative workers can be paid without artificially restricting the distribution of their material as is the case with a copyright monopoly granted by the government.

The AFV is designed to provide support for creative workers in a way that defers to individuals’ views on the creative work that they would like to see supported. It is also designed in such a way that it can exist in competition with the copyright system. However, over time the inherent superiority of the AFV system, as a more efficient mechanism for supporting creative work, may lead it to become more important than the copyright system as a means for financing creative work.

It is worth pointing out that the AFV system is not intended in any way to remove the artists’ connection to the work they produce. It is simply changing the way in which they are compensated, with the payment coming at the time the work is created, rather than when someone actually acquires the work. In this context it may be appropriate to accompany an AFV system with stronger laws on fraud. Under the current system, copyright can be used as an enforcement mechanism against fraud. For example, if a musician deliberately copies another artist’s song and presents it as his own, the original artist can sue under copyright law. Under the AFV system, it should also be possible to take legal action against those who misrepresent others’ work as their own.

While the AFV system is a government supported program, it does away with unnecessary state intervention and bureaucracy in supporting creative work.

It should maximize the opportunity for the population to individually and/or collectively decide what sort of creative work they believe deserves public funding."


Source

  • The Artistic Freedom Voucher System: Issues in the United States and Ecuador. Dean Baker and Mark Weisbrot.

Center for Economic and Policy Research, 2011

This paper has 5 parts. The first part outlines the basic features of the AFV. The second part describes what such a system would look like in the United States. The third part discusses the obstacles to establishing an AFV system in the United States. The fourth part outlines how an AFV system might be structured in Ecuador and some of the advantages that Ecuador would have relative to the United States in implementing this sort of system. The last part is a brief conclusion.


Example

Ecuador

Richardo Restrepo:

"The current version has changed Dean Baker's original proposal in ways I think improve it substantially.

The changes engenered here in Ecuador include:

1. The right to allocate an AFV comes no longer from being a tax-payer, but from the condition of being a resident, which brings it closer to the condition of being a human being at a national level, análogous to the right to vote.

2. This makes the use of the AFV system as an avenue more properly described as a muscle in the popular power--rather than one in a capitalist market or a direct power of the state.

3. The use of the internet for the allocation.

4. Considering the relative lack of entrenched organized interests against non-copyright works in Ecuador, creation of the possibility that artistic works under the system become a common intellectual good of humanity, except when use is for profit,

5. which creates additional avenues for creative human expression and exchange, while not becoming a form of privatized public investment.

6. Creating not only an input for local private business, who pay the author and the state, but also

7. New export products (those artistic works in the AFV system) which will be bought by private business abroad, thus

8. Contributing to the change in the composition of the productive matrix of the country. Oh, perhaps one more substantive change, is

9. Putting limits on inequality in the system at both the bottom and the top, on principles of human rights and minimizing risk for potential incomers and experimental artists (the minimum), and winner take-all tendencies (at the top)."


More Information

Essay by Dean Baker at http://www.paecon.net/PAEReview/issue32/Baker32.htm