The Right Way to Tax DAT
[This article was published in Wired magazine in 1992; the text has not been changed, but notes in square brackets have been added (with these notes emphasized for those browsers that will display emphasized text).]
Record company magnates don't like the digital audio tape recorder (DAT), which can make perfect copies of musical recordings. They fear that customers will copy music themselves, and stop buying prerecorded music.
Threatening lawsuits, they have obtained from the manufacturers of DATs an agreement to pay a fee for each DAT unit and each DAT tape sold to consumers. This fee is to be divided among various participants in the music business: musicians, composers, music publishers and record companies. In addition, DAT manufacturers have agreed to cripple DAT units so that they cannot make a copy of a copy of a prerecorded piece.
Now the record companies have asked Congress to enact a law turning this fee into a tax and prohibiting manufacture of DAT tapedecks that function without imposed limitations.
The stated purpose of the tax is to “compensate” musicians for copying done by individuals using DATs. However, 57 percent of the funds collected would go to record companies and music publishers—leaving less than half to the people who participate in the creative process. Most of these remaining funds would go to musical superstars, and thus would do little to encourage musical creativity. Meanwhile, DAT users would be unable to make full use of the power of DAT technology.
Here is a proposal for a different system for taxing DATs and DAT tape—one designed to support music rather than cater to vested interests.
- Collect funds with a tax on DAT machines and DAT tapes, as the current proposal provides.
- Use a survey system to measure the extent of copying of each musical piece.
- Distribute these funds entirely to the people who create music.
- Adjust each contributor's share so that it increases more slowly per copy as it gets larger. This spreads the funds more widely to support a larger number of musicians adequately.
- Make no restrictions on the functioning of DATs.
What is the purpose of copyright?
The record industry presents its proposal as a way to “compensate” musicians, assuming that they are entitled to be paid for any copy made. Many Americans believe that copyright law reflects a natural right of authors or musicians—that these are entitled to special consideration from public policy. However, any lawyer specializing in the field knows this is a misunderstanding, a view rejected by the American legal system.
The stated purpose of copyright, given in the U.S. Constitution, is to “promote the progress of science and the useful arts”. Progress in music means new and varied music for the public to enjoy: copyright is supposed to promote a public good, not a private one.
Yet copyright is often thought of as a natural right by laymen and politicians, which often leads to wrong decisions about copyright policy. Even courts, defining the details of the copyright system, often let this thought creep back implicitly even though it is supposed to be excluded. This is a conceptual error because it mistakes a means (copyright) to a larger end (progress) for an end in itself.
Promoting progress in the arts does not inherently justify the idea that authors are entitled to any particular sort of copyright, or even that copyright should exist at all. Copyright is justified if the benefits of progress exceeds the burden that copyright imposes on everyone except the copyright holder.
How do we make this cost/benefit comparison? It depends partly on facts (how does a particular law affect musical activity and music users) and partly on our value judgements about those results.
Let's assume that it is worth paying a DAT tax if the result is a significant increase in musical activity, and investigate how we should arrange the details of this tax in order to maximize the benefit. But first, let's review basic principles and facts which have a bearing on the inquiry.
Diminishing returns
The law of diminishing returns is a general principle of economics. It states that each additional increment of efforts or funds spent on a given goal typically produces a smaller and smaller increment in the results. There are exceptions to this law, but they are local; if you keep on increasing the inputs, you eventually leave the exceptions behind.
For example, you can make traffic flow more smoothly by improving roads. Adding one lane to 20 miles of congested roads in a city might increase the average traffic speed by 15 miles an hour. Adding a second lane to those roads will not give the same improvement; this might increase the average speed by only 5 more miles an hour. The next additional lane might make no noticeable difference if the traffic jams are already gone. Yet each successive lane will cause greater dislocation as more and more buildings must be torn down to make room.
When applied to the activities of musicians, diminishing returns tells us that each successive increase in the income of musicians will have a smaller effect on the amount of creativity in music.
Diminishing returns is the first reason to reject the idea that a